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Auctions with Private Entry Costs

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  • Kaplan, Todd
  • Sela, Aner

Abstract

We study auctions where bidders have private information about their entry costs and the seller does not benefit from these entry costs. We consider a symmetric environment where all bidders have the same value for the object being sold, and also an asymmetric environment where bidders may have different valuations for the object. In these environments, the seller’s pay-off as well as the social surplus may either increase or decrease in the number of bidders though not necessarily in the same direction. The auction designs that maximize the social surplus or the seller’s pay-off are analysed.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4080.

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Date of creation: Oct 2003
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Handle: RePEc:cpr:ceprdp:4080

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Keywords: asymmetric auctions; entry costs; symmetric auctions;

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References

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  1. Elmar Wolfstetter & Walter Elberfeld, 1997. "A Dynamic Model of Bertrand Competition with Entry," Microeconomics 9701003, EconWPA.
  2. Todd R. Kaplan & Shmuel Zamir, 2002. "A Note on Revenue Effects of Asymmetry in Private-Value Auctions," Discussion Paper Series dp291, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  3. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  4. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
  5. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Smith, James L. & Levin, Dan, 1996. "Ranking Auctions with Risk Averse Bidders," Journal of Economic Theory, Elsevier, vol. 68(2), pages 549-561, February.
  7. Thomas, Charles J., 2002. "The effect of asymmetric entry costs on Bertrand competition," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 589-609, May.
  8. John G. Riley & William Samuelson, 1979. "Optimal Auctions," UCLA Economics Working Papers 152, UCLA Department of Economics.
  9. Engelbrecht-Wiggans Richard, 1993. "Optimal Auctions Revisited," Games and Economic Behavior, Elsevier, vol. 5(2), pages 227-239, April.
  10. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
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Citations

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Cited by:
  1. Xiaoyong Cao & Guoqiang Tian, 2013. "Second-Price Auctions with Different Participation Costs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(1), pages 184-205, 03.
  2. Cao, Xiaoyong & Tian, Guoqiang, 2007. "Second-price Auction with Two-Dimensional Private Information on Values and Participation Costs," MPRA Paper 41224, University Library of Munich, Germany.
  3. Cao, Xiaoyong & Tian, Guoqiang, 2010. "Equilibria in first price auctions with participation costs," Games and Economic Behavior, Elsevier, vol. 69(2), pages 258-273, July.
  4. Hsueh, Shao-Chieh & Tian, Guoqiang, 2009. "Nonratifiability of the Cartel Mechanism in First-Price Sealed-Bid Auction with Participation Costs," MPRA Paper 41202, University Library of Munich, Germany, revised Oct 2010.
  5. Fan, Cuihong & Wolfstetter, Elmar, 2008. "Procurement with costly bidding, optimal shortlisting, and rebates," Economics Letters, Elsevier, vol. 98(3), pages 327-334, March.
  6. Hu, Luke, 2012. "Optimal Use of Rewards as Commitment Device When Bidding is Costly," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 377, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  7. Uwe Dulleck & Jianpei Li, 2011. "Contracting for Infrastructure Projects as Credence Goods," NCER Working Paper Series 73, National Centre for Econometric Research.
  8. Lu, Jingfeng, 2006. "Endogenous entry and auctions design with private participation costs," MPRA Paper 934, University Library of Munich, Germany.
  9. Antonio Miralles, 2005. "Auction theory, sequential local service privatization, and the effects of geographical scale economies on effective competition," Working Papers in Economics 132, Universitat de Barcelona. Espai de Recerca en Economia.

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