Mechanism Design with Aftermarkets

I study a model of mechanism design in which the mechanism is followed by an aftermarket, that is, a post-mechanism game played between the agent and other market participants. The designer has preferences that depend on the final outcome but she cannot directly redesign the aftermarket. However, she can influence its information structure by disclosing information elicited by the mechanism. I identify a class of cutoff mechanisms which elicit and release information in a way that is always incentive compatible, regardless of the form of the aftermarket and underlying distribution of types. Under a richness condition, only cutoff mechanisms have this property. Optimization in the class of cutoff mechanisms is tractable and yields results with applications to the design of auctions followed by bargaining or resale markets, and optimal level of post-transaction transparency in over-the-counter markets.