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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. Colin Campbell & Dan Levin, 2006. "When and why not to auction," Economic Theory, Springer, Springer, vol. 27(3), pages 583-596, 04.
  2. Bengt Holmstrom & Roger B. Myerson, 1981. "Efficient and Durable Decision Rules with Incomplete Information," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 495, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Harris, Milton & Raviv, Artur, 1981. "Allocation Mechanisms and the Design of Auctions," Econometrica, Econometric Society, Econometric Society, vol. 49(6), pages 1477-99, November.
  5. Ronald M. Harstad, 2005. "Rational Participation Revolutionizes Auction Theory," Working Papers, Department of Economics, University of Missouri 0504, Department of Economics, University of Missouri.
  6. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, Econometric Society, vol. 53(2), pages 345-61, March.
  7. McAfee, R Preston & Reny, Philip J, 1992. "Correlated Information and Mechanism Design," Econometrica, Econometric Society, Econometric Society, vol. 60(2), pages 395-421, March.
  8. Jeremy Bulow & Paul Klemperer, 1994. "Auctions vs. Negotiations," NBER Working Papers 4608, National Bureau of Economic Research, Inc.
  9. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, Econometric Society, vol. 50(5), pages 1089-1122, September.
  10. John G. Riley & William Samuelson, 1979. "Optimal Auctions," UCLA Economics Working Papers 152, UCLA Department of Economics.
  11. Robert, Jacques, 1991. "Continuity in auction design," Journal of Economic Theory, Elsevier, vol. 55(1), pages 169-179, October.
  12. Bulow, Jeremy & Roberts, John, 1989. "The Simple Economics of Optimal Auctions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(5), pages 1060-90, October.
  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. Nicola Persico, 2000. "Information Acquisition in Auctions," Econometrica, Econometric Society, Econometric Society, vol. 68(1), pages 135-148, January.
  15. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, Econometric Society, vol. 56(6), pages 1247-57, November.
  16. Levin, Dan & Harstad, Ronald M., 1986. "Symmetric bidding in second-price, common-value auctions," Economics Letters, Elsevier, vol. 20(4), pages 315-319.
  17. McAfee, R Preston & McMillan, John & Reny, Philip J, 1989. "Extracting the Surplus in the Common-Value Auction," Econometrica, Econometric Society, Econometric Society, vol. 57(6), pages 1451-59, November.
  18. Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 44(3), pages 511-18, October.
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Citations

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Cited by:
  1. Ronald M. Harstad, 2005. "Rational Participation Revolutionizes Auction Theory," Working Papers, Department of Economics, University of Missouri 0518, Department of Economics, University of Missouri.
  2. Ronald M. Harstad & Michael H. Rothkopf & Justin Jia, 2009. "Information Variability Impacts in Auctions," Working Papers, Department of Economics, University of Missouri 0908, Department of Economics, University of Missouri.
  3. Ronald M Harstad, 2011. "Endogenous Competition Alters the Structure of Optimal Auctions," ISER Discussion Paper 0816, Institute of Social and Economic Research, Osaka University.

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