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Market Design with Correlated Valuations

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  • Yongmin Chen

    ()
    (University of Colorado at Boulder)

  • Ruqu Wang

    ()
    (Queen's University)

Abstract

The effects of information on market design are explored in a simple setting where firms have private information about their correlated fixed costs and the government aims to maximize its expected revenue conditional on achieving efficient allocations. Government revenues are higher when the costs are less correlated (or are more of a private value). The reduced correlation increases the firms' information rents, but a change in the information structure also changes the expected market structures with positive effects on government revenues. If the government faces the no-deficit constraint, there are situations where efficient allocations are achieved under asymmetric information but not under symmetric information.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1034.pdf
File Function: First version 2005
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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1034.

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Length: 34 pages
Date of creation: Sep 2005
Date of revision:
Publication status: Forthcoming in Economica
Handle: RePEc:qed:wpaper:1034

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Keywords: market structure; correlated values; market design; government revenue;

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  1. Thomas G. McGuire & Michael H. Riordan, 1991. "Incomplete Information and Optimal Market Structure: Public Purchases from Private Providers," Papers 0010, Boston University - Industry Studies Programme.
  2. Riordan, Michael H & Sappington, David E M, 1987. "Awarding Monopoly Franchises," American Economic Review, American Economic Association, vol. 77(3), pages 375-87, June.
  3. Vijay Krishna & Robert Rosenthal, 1995. "Simultaneous Auctions with Synergies," Papers 0056, Boston University - Industry Studies Programme.
  4. Asher Wolinsky, 1997. "Regulation of Duopoly: Managed Competition vs Regulated Monopolies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 821-847, December.
  5. Riordan, Michael H, 1996. "Contracting with Qualified Suppliers," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(1), pages 115-28, February.
  6. Chen, Yongmin, 2000. "Strategic Bidding by Potential Competitors: Will Monopoly Persist?," Journal of Industrial Economics, Wiley Blackwell, vol. 48(2), pages 161-75, June.
  7. Bikhchandani, Sushil, 1988. "Reputation in repeated second-price auctions," Journal of Economic Theory, Elsevier, vol. 46(1), pages 97-119, October.
  8. Vijay Krishna & Motty Perry, 1997. "Efficient Mechanism Design," Game Theory and Information 9703010, EconWPA, revised 28 Apr 1998.
  9. Krishna, K., 1990. "Auctions with Endogenous Valuations: The Persistence of Monopoly Revisited," Papers 472, Stockholm - International Economic Studies.
  10. Robert W. Rosenthal & Ruqu Wang, 1995. "Simultaneous Auctions with Synergies and Common Values," Papers 0060, Boston University - Industry Studies Programme.
  11. Wilson, Robert, 1979. "Auctions of Shares," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 675-89, November.
  12. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Anton, James J & Yao, Dennis A, 1992. "Coordination in Split Award Auctions," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 681-707, May.
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