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Auctions with Costly Information Acquisition

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Author Info
Crémer, Jacques
Spiegel, Yossi
Zheng, Charles Zhoucheng

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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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Publisher Info
Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12709.

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Length: 35 pages
Date of creation: 16 Jan 2007
Date of revision:
Publication status: Published in Economic Theory, January 2009, Vol. 38, No. 1, pp. 41-72.
Handle: RePEc:isu:genres:12709

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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Related research
Keywords: optimal auction; optimal search; information acquisition; full extraction; endogenous entry;

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Find related papers by JEL classification:
D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Burguet, Roberto, 1996. "Optimal Repeated Purchases When Sellers Are Learning about Costs," Journal of Economic Theory, Elsevier, vol. 68(2), pages 440-455, February. [Downloadable!] (restricted)
  2. Cremer, Jacques & Khalil, Fahad & Rochet, Jean-Charles, 1998. "Strategic Information Gathering before a Contract Is Offered," Journal of Economic Theory, Elsevier, vol. 81(1), pages 163-200, July. [Downloadable!] (restricted)
    Other versions:
  3. Preston McAfee, R. & McMillan, John, 1988. "Search mechanisms," Journal of Economic Theory, Elsevier, vol. 44(1), pages 99-123, February. [Downloadable!] (restricted)
  4. Weitzman, Martin L, 1979. "Optimal Search for the Best Alternative," Econometrica, Econometric Society, vol. 47(3), pages 641-54, May. [Downloadable!] (restricted)
    Other versions:
  5. Cremer, Jacques & Khalil, Fahad & Rochet, Jean-Charles, 1998. "Contracts and Productive Information Gathering," Games and Economic Behavior, Elsevier, vol. 25(2), pages 174-193, November. [Downloadable!] (restricted)
    Other versions:
  6. 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.
  7. Bergemann, Dirk & Pesendorfer, Martin, 2001. "Information Structures in Optimal Auctions," CEPR Discussion Papers 2991, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347. [Downloadable!] (restricted)
  9. Chakraborty, Indranil & Kosmopoulou, Georgia, 2001. "Auctions with endogenous entry," Economics Letters, Elsevier, vol. 72(2), pages 195-200, August. [Downloadable!] (restricted)
  10. Dirk Bergemann & Juuso Valimaki, 2002. "Information Acquisition and Efficient Mechanism Design," Econometrica, Econometric Society, vol. 70(3), pages 1007-1033, May. [Downloadable!] (restricted)
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  11. Klemperer, P., 1999. "Auction Theory: a Guide to the Literature," Economics Papers 1999-w12, Economics Group, Nuffield College, University of Oxford.
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  12. Stegeman, Mark, 1996. "Participation Costs and Efficient Auctions," Journal of Economic Theory, Elsevier, vol. 71(1), pages 228-259, October. [Downloadable!] (restricted)
  13. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June. [Downloadable!] (restricted)
  14. Cremer, Jaques & Spiegel, Yossi & Zheng, Charles, 2006. "Optimal Search Auctions," Staff General Research Papers 12662, Iowa State University, Department of Economics.
  15. repec:bep:thecon:v:4:y:2004:i:1:p:1158-1158 is not listed on IDEAS
  16. Cremer, Jacques & Spiegel, Yossi & Zheng, Charles, 2006. "Optimal Search Auctions with Correlated Bidder Types," Staff General Research Papers 12663, Iowa State University, Department of Economics.
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  17. Myerson, Roger B, 1986. "Multistage Games with Communication," Econometrica, Econometric Society, vol. 54(2), pages 323-58, March. [Downloadable!] (restricted)
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  18. Nicola Persico, 2000. "Information Acquisition in Auctions," Econometrica, Econometric Society, vol. 68(1), pages 135-148, January.
    Other versions:
  19. Vishwanath, Tara, 1992. "Parallel Search for the Best Alternative," Economic Theory, Springer, vol. 2(4), pages 495-507, October.
  20. Cremer, Jacques & Spiegel, Yossi & Zheng, Charles Zhoucheng, 2007. "Optimal search auctions," Journal of Economic Theory, Elsevier, vol. 134(1), pages 226-248, May. [Downloadable!] (restricted)
    Other versions:
  21. Cremer, Jacques & Khalil, Fahad, 1992. "Gathering Information before Signing a Contract," American Economic Review, American Economic Association, vol. 82(3), pages 566-78, June. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bulow, Jeremy I. & Klemperer, Paul D., 2007. "When Are Auctions Best?," Research Papers 1973, Stanford University, Graduate School of Business. [Downloadable!]
    Other versions:
  2. repec:bep:theadv:v:6:y:2006:i:1:p:1261-1261 is not listed on IDEAS
  3. George Deltas, 2009. "Introduction to the Symposium," Economic Theory, Springer, vol. 38(1), pages 1-7, January. [Downloadable!] (restricted)
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