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Revenue-Capped Efficient Auctions

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  • Nozomu Muto
  • Yasuhiro Shirata
  • Takuro Yamashita

Abstract

We study an auction that maximizes the expected social surplus under an upper-bound constraint on the seller’s expected revenue, which we call a revenue cap. Such a constrained-efficient auction may arise, for example, when (i) the auction designer is “pro-buyer”, that is, he maximizes the weighted sum of the buyers’ and seller’s auction payoffs, where the weight for the buyers is greater than that for the seller; (ii) the auction designer maximizes the (unweighted) total surplus in a multiunit auction in which the number of units the seller owns is private information; or (iii) multiple sellers compete to attract buyers before the auction. We characterize the mechanisms for constrained-efficient auctions and identify their important properties. First, the seller sets no reserve price and sells the good for sure. Second, with a nontrivial revenue cap, “bunching” is necessary. Finally, with a sufficiently severe revenue cap, the constrained-efficient auction has a bid cap, so that bunching occurs at least “at the top,” that is, “no distortion at the top” fails.

Suggested Citation

  • Nozomu Muto & Yasuhiro Shirata & Takuro Yamashita, 2020. "Revenue-Capped Efficient Auctions," Journal of the European Economic Association, European Economic Association, vol. 18(3), pages 1284-1320.
    • Handle: RePEc:oup:jeurec:v:18:y:2020:i:3:p:1284-1320.
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    Cited by:

    1. Zhonghao Shui, 2023. "Rejection prices and an auctioneer with non-monotonic utility," International Journal of Game Theory, Springer;Game Theory Society, vol. 52(3), pages 925-951, September.
    2. Sebastián D. Bauer, 2023. "Buyers’ welfare maximizing auction design," International Journal of Game Theory, Springer;Game Theory Society, vol. 52(2), pages 555-567, June.
    3. Muto, Nozomu & Shirata, Yasuhiro, 2017. "Manipulation via endowments in auctions with multiple goods," Mathematical Social Sciences, Elsevier, vol. 87(C), pages 75-84.

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