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Optimal nondiscriminatory auctions with favoritism

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  • Federico Weinschelbaum

    ()
    (Department of Economics, Universidad de San Andres & CONICET)

  • Leandro Arozamena

    (Department of Economics, UTDT & CONICET)

  • Nicolas Shunda

    (University of Redlands)

Abstract

In many auction settings, there is favoritism: the seller's welfare depends positively on the utility of a subset of potential bidders. However, laws or regulations may not allow the seller to discriminate among bidders. We find the optimal nondiscriminatory auction in a private value, single-unit model under favoritism. At the optimal auction there is a reserve price, or an entry fee, which is decreasing in the proportion of preferred bidders and in the intensity of the preference. Otherwise, the highest-valuation bidder wins. We show that, at least under some conditions, imposing a no-discrimination constraint raises expected seller revenue.

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File URL: ftp://webacademicos.udesa.edu.ar/pub/econ/doc110.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by Universidad de San Andres, Departamento de Economia in its series Working Papers with number 110.

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Length: 19 pages
Date of creation: Mar 2012
Date of revision: Mar 2012
Handle: RePEc:sad:wpaper:110

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Keywords: auctions; favoritism; nondiscriminatorymechanisms;

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  1. Federico Weinschelbaum & Leandro Arozamena & Nicolas Shunda, 2012. "Optimal nondiscriminatory auctions with favoritism," Working Papers, Universidad de San Andres, Departamento de Economia 110, Universidad de San Andres, Departamento de Economia, revised Mar 2012.
  2. Laffont, Jean-Jacques & Tirole, Jean, 1991. "Auction design and favoritism," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 9(1), pages 9-42, March.
  3. Roberto Burguet & Martin K. Perry, 2008. "Preferred Suppliers in Auction Markets," UFAE and IAE Working Papers, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC) 752.08, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  4. Vagstad, Steinar, 1995. "Promoting fair competition in public procurement," Journal of Public Economics, Elsevier, Elsevier, vol. 58(2), pages 283-307, October.
  5. Naegelen, Florence & Mougeot, Michel, 1998. "Discriminatory public procurement policy and cost reduction incentives," Journal of Public Economics, Elsevier, Elsevier, vol. 67(3), pages 349-367, March.
  6. Leandro Arozamena & Federico Weinschelbaum, 2010. "On Favoritism in Auctions with Entry," Working Papers, Universidad de San Andres, Departamento de Economia 103, Universidad de San Andres, Departamento de Economia, revised May 2010.
  7. McAfee, R. Preston & McMillan, John, 1989. "Government procurement and international trade," Journal of International Economics, Elsevier, Elsevier, vol. 26(3-4), pages 291-308, May.
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Cited by:
  1. Federico Weinschelbaum & Leandro Arozamena & Nicolas Shunda, 2012. "Optimal nondiscriminatory auctions with favoritism," Working Papers, Universidad de San Andres, Departamento de Economia 110, Universidad de San Andres, Departamento de Economia, revised Mar 2012.

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