The Variable Value Environment: Auctions and Actions
AbstractWe model an environment, where bidders’ private values may change over time as a result of both costly private actions and exogenous shocks. Examples of private actions include investment and entry decisions; shocks might be due to exogenous changes in a potential buyer’s circumstances. We describe an efficient auction mechanism that maximizes the final value of the object to the winning bidder net of the total cost of investment by all agents. In particular, we show that, assuming that the auctioneer does not have full commitment power, costly signalling is necessary for efficient entry when agents receive private information both before and after they make the entry decision. To rule out pooling equilibria that coexist with the efficient equilibrium in the basic mechanism, we introduce a virtual-implementation-style mechanism that (i) is almost efficient; (ii) forces players to coordinate on the separating equilibrium; and (iii) is simple enough to be potentially useful in practice.
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Bibliographic InfoPaper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0020.
Length: 26 pages
Date of creation: Jan 2001
Date of revision: Oct 2005
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auctions; efficient mechanism design;
Other versions of this item:
- Schwarz, Michael & Sonin, Konstantin, 2002. "The Variable Value Environment: Auctions and Actions," CEPR Discussion Papers 3670, C.E.P.R. Discussion Papers.
- Michael Schwarz & Konstantin Sonin, 2001. "The Variable Value Environment: Auctions and Actions," Harvard Institute of Economic Research Working Papers 1918, Harvard - Institute of Economic Research.
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
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