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Optimal advertising of auctions

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  • Szech, Nora
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    Abstract

    We study a symmetric independent private values auction model where the revenue-maximizing seller faces a cost cn of attracting n bidders to the auction. If the distribution of valuations possesses an increasing failure rate (IFR), the seller overinvests in attracting bidders compared to the social optimum. Conversely, if the distribution is DFR, the seller underinvests compared to the social optimum. If the distribution of valuations becomes more dispersed, both, a revenue- and a welfare-maximizing seller, attract more bidders.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Theory.

    Volume (Year): 146 (2011)
    Issue (Month): 6 ()
    Pages: 2596-2607

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    Handle: RePEc:eee:jetheo:v:146:y:2011:i:6:p:2596-2607

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    Web page: http://www.elsevier.com/locate/inca/622869

    Related research

    Keywords: Auctions; Advertising; Order statistics;

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    1. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-94, March.
    2. Bergemann, Dirk & Välimäki, Juuso, 2006. "Information in Mechanism Design," CEPR Discussion Papers 5494, C.E.P.R. Discussion Papers.
    3. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
    4. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
    5. Carl Shapiro, 1980. "Advertising and Welfare: Comment," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 749-752, Autumn.
    6. French, Kenneth R & McCormick, Robert E, 1984. "Sealed Bids, Sunk Costs, and the Process of Competition," The Journal of Business, University of Chicago Press, vol. 57(4), pages 417-41, October.
    7. Moldovanu, Benny & Sela, Aner & Shi, Xianwen, 2008. "Competing auctions with endogenous quantities," Journal of Economic Theory, Elsevier, vol. 141(1), pages 1-27, July.
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    Cited by:
    1. Christian Ewerhart, 2013. "Regular type distributions in mechanism design and $$\rho $$ -concavity," Economic Theory, Springer, vol. 53(3), pages 591-603, August.

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