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The Variable Value Environment: Auctions and Actions

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  • Schwarz, Michael
  • Sonin, Konstantin

Abstract

This Paper introduces and formally models the variable value environment, where bidders' private values may change over time as a result of both private actions and exogenous shocks. Examples of private actions and exogenous shocks are complementary investments and exogenous changes in bidder's business, respectively. We study mechanisms that lead to efficient allocations, i.e. those in which the final value of the object to the winning bidder net of the total cost of private actions undertaken by all agents is maximized. We characterize the first best allocation, and propose a mechanism that yields the first best allocation in equilibrium. This mechanism has an inefficient pooling equilibrium along with an efficient separating equilibrium. To rule out the pooling equilibrium, we introduce a class of almost efficient mechanisms that force players to coordinate on the separating equilibrium.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3670.

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Date of creation: Dec 2002
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Handle: RePEc:cpr:ceprdp:3670

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Keywords: auctions; variable value environment;

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References

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  14. Richard L. Fullerton & R. Preston McAfee, 1999. "Auctioning Entry into Tournaments," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 573-605, June.
  15. Maskin, Eric S., 2000. "Auctions, development, and privatization: Efficient auctions with liquidity-constrained buyers," European Economic Review, Elsevier, vol. 44(4-6), pages 667-681, May.
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  17. Milgrom, Paul R, 1981. "Rational Expectations, Information Acquisition, and Competitive Bidding," Econometrica, Econometric Society, vol. 49(4), pages 921-43, June.
  18. Haim Levy, 1992. "Stochastic Dominance and Expected Utility: Survey and Analysis," Management Science, INFORMS, vol. 38(4), pages 555-593, April.
  19. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation for Research in Economics, Yale University.
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Cited by:
  1. Andreas Lange & John A. List & Michael K. Price, 2010. "Auctions with Resale When Private Values Are Uncertain: Evidence from the Lab and Field," NBER Working Papers 16360, National Bureau of Economic Research, Inc.
  2. Sonin Konstantin, 2004. "Private interest in public tenders: no revenue, no efficiency and no social benefits," EERC Working Paper Series 00-111e, EERC Research Network, Russia and CIS.
  3. Schmöller, Arno, 2010. "Bidding Behavior, Seller Strategies, and the Utilization of Information in Auctions for Complex Goods," Munich Dissertations in Economics 11175, University of Munich, Department of Economics.
  4. Giacomo Calzolari & Alessandro Pavan, 2006. "Monopoly with resale," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 362-375, 06.
  5. Michael Schwarz & Sergei Severinov, 2010. "Investment Tournaments: When Should a Rational Agent Put All Eggs in One Basket?," Journal of Labor Economics, University of Chicago Press, vol. 28(4), pages 893-922, October.

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