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Auctions with costly information acquisition

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Author Info

  • Jacques Crémer

    ()

  • Yossi Spiegel

    ()

  • Charles Zheng

    ()

Abstract

We characterize optimal selling mechanisms in auction environments where bidders must incur a cost to learn their valuations. These mechanisms specify for each period, as a function of the bids in previous periods, which new potential buyers should be asked to bid. In addition, these mechanisms must induce the bidders to acquire information about their valuations and to reveal this information truthfully. Using a generalized Groves principle, we prove a very general full extraction of the surplus result: the seller can obtain the same profit as if he had full control over the bidders' acquisition of information and could have observed directly their valuations once they are informed. We also present appealing implementations of the optimal mechanism in special cases.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 38 (2009)
Issue (Month): 1 (January)
Pages: 41-72

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Handle: RePEc:spr:joecth:v:38:y:2009:i:1:p:41-72

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Related research

Keywords: Auctions; Mechanism design; Groves; Adverse selection; Costly information; D44; D82; D83;

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References

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  1. Nicola Persico, 1997. "Information Acquisition in Auctions," UCLA Economics Working Papers 762, UCLA Department of Economics.
  2. Cremer, Jacques & Spiegel, Yossi & Zheng, Charles Z., 2006. "Optimal search auctions with correlated bidder types," Economics Letters, Elsevier, vol. 93(1), pages 94-100, October.
  3. Roger B. Myerson, 1984. "Multistage Games with Communication," Discussion Papers 590, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Cremer, J. & Khalil, F & Rochet, J.-C., 1996. "Strategic Information Gathering Before a Contract is Offered," Papers 976.425, Toulouse - GREMAQ.
  5. Cremer, J. & Khalil, F. & Rochet, J-C., 1997. "Contracts and productive information gathering," Discussion Paper Series In Economics And Econometrics 9707, Economics Division, School of Social Sciences, University of Southampton.
  6. Dirk Bergemann & Juuso Valimaki, 2002. "Information Acquisition and Efficient Mechanism Design," Econometrica, Econometric Society, vol. 70(3), pages 1007-1033, May.
  7. Stegeman, Mark, 1996. "Participation Costs and Efficient Auctions," Journal of Economic Theory, Elsevier, vol. 71(1), pages 228-259, October.
  8. Cremer, J. & Khalil, F., 1991. "Gathering Information Before Signing a Contract," Discussion Papers in Economics at the University of Washington 91-16, Department of Economics at the University of Washington.
  9. Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Microeconomics 9903002, EconWPA.
  10. Ye Lixin, 2004. "Optimal Auctions with Endogenous Entry," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 4(1), pages 1-29, October.
  11. Burguet, Roberto, 1996. "Optimal Repeated Purchases When Sellers Are Learning about Costs," Journal of Economic Theory, Elsevier, vol. 68(2), pages 440-455, February.
  12. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  13. Bergemann, Dirk & Pesendorfer, Martin, 2001. "Information Structures in Optimal Auctions," CEPR Discussion Papers 2991, C.E.P.R. Discussion Papers.
  14. Charles Zhoucheng Zheng & Jacques Cremer & Yossef Spiegel, 2004. "Optimal search auctions," Econometric Society 2004 North American Summer Meetings 615, Econometric Society.
  15. Weitzman, Martin L, 1979. "Optimal Search for the Best Alternative," Econometrica, Econometric Society, vol. 47(3), pages 641-54, May.
  16. Preston McAfee, R. & McMillan, John, 1988. "Search mechanisms," Journal of Economic Theory, Elsevier, vol. 44(1), pages 99-123, February.
  17. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
  18. Lewis, Tracy R & Sappington, David E M, 1997. "Information Management in Incentive Problems," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 796-821, August.
  19. Chakraborty, Indranil & Kosmopoulou, Georgia, 2001. "Auctions with endogenous entry," Economics Letters, Elsevier, vol. 72(2), pages 195-200, August.
  20. Vishwanath, Tara, 1992. "Parallel Search for the Best Alternative," Economic Theory, Springer, vol. 2(4), pages 495-507, October.
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