Allocating Positional Goods: A Mechanism Design Approach

I study the optimal allocation of positional goods in the presence of externalities arising from consumers’ concerns about relative consumption. Applications include luxury goods, priority services, education, and organizational hierarchies. Using a mechanism-design approach, I characterize the set of feasible allocations through a majorization condition. The revenue-maximizing mechanism possibly excludes some buyers and fully separates participants under Myerson’s regularity condition. The seller can guarantee at least half the maximum revenue by offering a single good. Without exclusion, offering more levels of goods decreases (increases) consumer surplus under increasing (decreasing) failure rates. Higher participation raises consumer surplus under increasing failure rates.