This paper examines a Cournot game where capacity constraints are determined in an auction prior to the market interaction. Traditional auctions may not generate a profit-maximizing allocation of capacity in this case, a failure that is traced to the presence of externalities in the valuations....

Auctions can lead to efficient allocations in a wide class of assignment problems. In the presence of externalities, however, efficiency may no longer be guaranteed. This paper develops an ascending price auction based on Ausubel & Milgrom (2002)'s package auction that posesses an efficient Nash...