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Optimal nondiscriminatory auctions with favoritism

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  • Leandro Arozamena

    ()
    (Universidad Torcuato Di Tella and CONICET)

  • Nicholas Shunda

    ()
    (University of Redlands)

  • Federico Weinschelbaum

    ()
    (Universidad de San Andres and CONICET)

Abstract

In many auction settings, there is favoritism: the seller's welfare depends positively on the utility of a subset of potential bidders. However, laws or regulations may not allow the seller to discriminate among bidders. We find the optimal nondiscriminatory auction in a private value, single-unit model under favoritism. At the optimal auction there is a reserve price, or an entry fee, which is decreasing in the proportion of preferred bidders and in the intensity of the preference. Otherwise, the highest-valuation bidder wins. We show that, at least under some conditions, imposing a no-discrimination constraint raises expected seller revenue.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 34 (2014)
Issue (Month): 1 ()
Pages: 252-262

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Handle: RePEc:ebl:ecbull:eb-13-00718

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Keywords: auctions; favoritism; nondiscriminatory mechanisms;

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  1. Federico Weinschelbaum & Leandro Arozamena & Nicolas Shunda, 2012. "Optimal nondiscriminatory auctions with favoritism," Working Papers, Universidad de San Andres, Departamento de Economia 110, Universidad de San Andres, Departamento de Economia, revised Mar 2012.
  2. McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, Elsevier, vol. 26(3-4), pages 291-308, May.
  3. Roberto Burguet & Martin K. Perry, 2008. "Preferred Suppliers in Auction Markets," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 752.08, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  4. Arozamena, Leandro & Weinschelbaum, Federico, 2011. "On favoritism in auctions with entry," Economics Letters, Elsevier, Elsevier, vol. 110(3), pages 265-267, March.
  5. Laffont, Jean-Jacques & Tirole, Jean, 1991. "Auction design and favoritism," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 9(1), pages 9-42, March.
  6. Naegelen, Florence & Mougeot, Michel, 1998. "Discriminatory public procurement policy and cost reduction incentives," Journal of Public Economics, Elsevier, Elsevier, vol. 67(3), pages 349-367, March.
  7. Vagstad, Steinar, 1995. "Promoting fair competition in public procurement," Journal of Public Economics, Elsevier, Elsevier, vol. 58(2), pages 283-307, October.
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Cited by:
  1. Federico Weinschelbaum & Leandro Arozamena & Nicolas Shunda, 2012. "Optimal nondiscriminatory auctions with favoritism," Working Papers, Universidad de San Andres, Departamento de Economia 110, Universidad de San Andres, Departamento de Economia, revised Mar 2012.

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