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Ex-post full surplus extraction, straightforwardly

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  • Vlad Mares

    ()

  • Ronald Harstad

    ()

Abstract

Consider an estimate of the common value of an auctioned asset that is symmetric in the bidders' types. Such an estimate can be represented solely in terms of the order statistics of those types. This representation forms the basis for a pricing rule yielding truthful bidding as an equilibrium, whether bidders'types are affiliated or independent. We highlight the link between the estimator and full surplus extraction, providing a necessary and suffient condition for ex-post full surplus extraction, including the possibility of independent types. The results offer sharp insights into the strengths and limits of simple auctions by identifying the source of informational rents in such environments.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 32 (2007)
Issue (Month): 2 (August)
Pages: 399-410

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Handle: RePEc:spr:joecth:v:32:y:2007:i:2:p:399-410

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Web page: http://link.springer.de/link/service/journals/00199/index.htm

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Related research

Keywords: Common-value auctions; Full surplus extraction; Ex-post individual rationality; Mechanism design; D44; D82; D61; C72;

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References

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  1. Robert, Jacques, 1991. "Continuity in auction design," Journal of Economic Theory, Elsevier, vol. 55(1), pages 169-179, October.
  2. McAfee, R Preston & Reny, Philip J, 1992. "Correlated Information and Mechanism Design," Econometrica, Econometric Society, vol. 60(2), pages 395-421, March.
  3. Harris, Milton & Raviv, Artur, 1981. "Allocation Mechanisms and the Design of Auctions," Econometrica, Econometric Society, vol. 49(6), pages 1477-99, November.
  4. Bengt Holmstrom & Roger B. Myerson, 1981. "Efficient and Durable Decision Rules with Incomplete Information," Discussion Papers 495, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Levin, Dan & Harstad, Ronald M., 1986. "Symmetric bidding in second-price, common-value auctions," Economics Letters, Elsevier, vol. 20(4), pages 315-319.
  6. Jeremy Bulow & Paul Klemperer, 1994. "Auctions vs. Negotiations," NBER Working Papers 4608, National Bureau of Economic Research, Inc.
  7. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-92, June.
  8. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Nicola Persico, 1997. "Information Acquisition in Auctions," UCLA Economics Working Papers 762, UCLA Department of Economics.
  10. McAfee, R Preston & McMillan, John & Reny, Philip J, 1989. "Extracting the Surplus in the Common-Value Auction," Econometrica, Econometric Society, vol. 57(6), pages 1451-59, November.
  11. Ronald M. Harstad, 2005. "Rational Participation Revolutionizes Auction Theory," Working Papers 0518, Department of Economics, University of Missouri.
  12. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
  13. Matthews, Steven A., 1983. "Selling to risk averse buyers with unobservable tastes," Journal of Economic Theory, Elsevier, vol. 30(2), pages 370-400, August.
  14. 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.
  15. Bulow, Jeremy & Roberts, John, 1989. "The Simple Economics of Optimal Auctions," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1060-90, October.
  16. Colin Campbell & Dan Levin, 2006. "When and why not to auction," Economic Theory, Springer, vol. 27(3), pages 583-596, 04.
  17. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-61, March.
  18. Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 511-18, October.
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Cited by:
  1. Ronald M Harstad, 2011. "Endogenous Competition Alters the Structure of Optimal Auctions," ISER Discussion Paper 0816, Institute of Social and Economic Research, Osaka University.
  2. Ronald M. Harstad, 2005. "Rational Participation Revolutionizes Auction Theory," Working Papers 0504, Department of Economics, University of Missouri.
  3. Ronald M. Harstad & Michael H. Rothkopf & Justin Jia, 2009. "Information Variability Impacts in Auctions," Working Papers 0908, Department of Economics, University of Missouri.

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