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Surplus Extraction and Competition

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  • Peters, Michael

Abstract

A competitive economy is studied in which sellers offer alternative direct mechanisms to buyers who have correlated private information about their valuations. In contrast to the monopoly case where sellers charge entry fees and extract all buyers' surplus, it is shown that in the unique symmetric equilibrium with competition, sellers hold second price auctions with reserve prices set equal to their cost. Most important, it is a best reply for sellers not to charge entry fees of the kind normally used to extract surplus, even though it is feasible for them to do so. Copyright 2001 by The Review of Economic Studies Limited

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 68 (2001)
Issue (Month): 3 (July)
Pages: 613-31

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Handle: RePEc:bla:restud:v:68:y:2001:i:3:p:613-31

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  1. Larry Epstein & Michael Peters, 1996. "A Revelation Principle For Competing Mechanisms," Working Papers peters-96-02, University of Toronto, Department of Economics.
  2. Bulow, Jeremy I & Klemperer, Paul, 1994. "Auctions vs. Negotiations," CEPR Discussion Papers 924, C.E.P.R. Discussion Papers.
  3. John G. Riley & William Samuelson, 1979. "Optimal Auctions," UCLA Economics Working Papers 152, UCLA Department of Economics.
  4. Gale, Douglas, 1992. "A Walrasian Theory of Markets with Adverse Selection," Review of Economic Studies, Wiley Blackwell, vol. 59(2), pages 229-55, April.
  5. Michael Peters, 1995. "A Competitive Distribution of Auctions," Working Papers peters-95-03, University of Toronto, Department of Economics.
  6. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  7. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
  8. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-57, November.
  9. McAfee, R Preston & Reny, Philip J, 1992. "Correlated Information and Mechanism Design," Econometrica, Econometric Society, vol. 60(2), pages 395-421, March.
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Cited by:
  1. Alexey Kushnir, 2013. "On the equivalence between Bayesian and dominant strategy implementation: the case of correlated types," ECON - Working Papers 129, Department of Economics - University of Zurich.
  2. Dirk Bergemann & Stephen Morris, 2011. "Robust Mechanism Design: An Introduction," Cowles Foundation Discussion Papers 1818, Cowles Foundation for Research in Economics, Yale University.
  3. Hernando-Veciana, Angel, 2005. "Competition among auctioneers in large markets," Journal of Economic Theory, Elsevier, vol. 121(1), pages 107-127, March.
  4. Marcel Jansen, 2003. "Can Job Competition Prevent Hold-Ups?," Economics Working Papers we035120, Universidad Carlos III, Departamento de Economía.
  5. Parreiras, Sergio O., 2005. "Correlated information, mechanism design and informational rents," Journal of Economic Theory, Elsevier, vol. 123(2), pages 210-217, August.
  6. Ángel Hernando Veciana, 2001. "Competition Among Auctioneers," Working Papers. Serie AD 2001-18, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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