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Efficient and optimal mechanisms with private information acquisition costs

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  • Lu, Jingfeng
  • Ye, Lixin

Abstract

In auctions with private information acquisition costs, we completely characterize (socially) efficient and (revenue) optimal two-stage mechanisms, with the first stage being an entry right allocation mechanism and the second stage being a traditional private good provision mechanism. Both efficiency and revenue optimality require that the second-stage selling mechanism be ex post efficient and the number of entry slots be endogenously determined. We show that both efficient and optimal entry can be truthfully implemented in dominant strategies, and can also be implemented via all-pay, though not uniform-price or discriminatory-price, auctions.

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Bibliographic Info

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

Volume (Year): 148 (2013)
Issue (Month): 1 ()
Pages: 393-408

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Handle: RePEc:eee:jetheo:v:148:y:2013:i:1:p:393-408

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

Related research

Keywords: Mechanisms; Auctions; Two-stage auctions; Information acquisition; Entry;

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References

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  1. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
  2. Dirk Bergemann & Juuso Valimaki, 2005. "Information in Mechanism Design," Cowles Foundation Discussion Papers 1532, Cowles Foundation for Research in Economics, Yale University.
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  8. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521536721, October.
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  11. Diego Moreno & John Wooders, 2006. "Auctions with heterogeneous entry costs," Economics Working Papers we061806, Universidad Carlos III, Departamento de Economía.
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  13. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
  14. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  15. McAdams, David, 2007. "Adjustable supply in uniform price auctions: Non-commitment as a strategic tool," Economics Letters, Elsevier, vol. 95(1), pages 48-53, April.
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  17. Richard L. Fullerton & R. Preston McAfee, 1999. "Auctioning Entry into Tournaments," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 573-605, June.
  18. Stegeman, Mark, 1996. "Participation Costs and Efficient Auctions," Journal of Economic Theory, Elsevier, vol. 71(1), pages 228-259, October.
  19. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
  20. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-31, July.
  21. Jingfeng Lu, 2009. "Auction design with opportunity cost," Economic Theory, Springer, vol. 38(1), pages 73-103, January.
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Cited by:
  1. Xu, Xiaoshu & Levin, Dan & Ye, Lixin, 2013. "Auctions with entry and resale," Games and Economic Behavior, Elsevier, vol. 79(C), pages 92-105.

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