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Surplus Extraction and Competition

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  • Michael Peters

Abstract

A competitive economy is studied in which sellers offer alternative direct mechanisms to buyers who have correlated private information about their valuations. In contrast to the monopoly case where sellers charge entry fees and extract all buyers surplus, it is shown that in the \emph{unique} symmetric equilibrium with competition, sellers hold second price auctions with reserve prices set equal to their cost. Most important, it is a best reply for sellers not to charge entry fees of the kind normally used to extract surplus, even though it is feasible for them to do so.

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File URL: http://www.economics.utoronto.ca/public/workingPapers/UT-ECIPA-PETERS-97-02.ps
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File URL: http://www.economics.utoronto.ca/public/workingPapers/UT-ECIPA-PETERS-97-02.pdf
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Download Restriction: no

Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number peters-97-02.

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Length: 29 pages
Date of creation: 11 Jul 1997
Date of revision:
Handle: RePEc:tor:tecipa:peters-97-02

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References

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  1. Peters, Michael, 1997. "A Competitive Distribution of Auctions," Review of Economic Studies, Wiley Blackwell, vol. 64(1), pages 97-123, January.
  2. Larry Epstein & Michael Peters, 1996. "A Revelation Principle For Competing Mechanisms," Working Papers peters-96-02, University of Toronto, Department of Economics.
  3. McAfee, R Preston & Reny, Philip J, 1992. "Correlated Information and Mechanism Design," Econometrica, Econometric Society, vol. 60(2), pages 395-421, March.
  4. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  5. Bulow, Jeremy I & Klemperer, Paul, 1994. "Auctions vs. Negotiations," CEPR Discussion Papers 924, C.E.P.R. Discussion Papers.
  6. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-92, June.
  7. Gale, Douglas, 1992. "A Walrasian Theory of Markets with Adverse Selection," Review of Economic Studies, Wiley Blackwell, vol. 59(2), pages 229-55, April.
  8. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-57, November.
  9. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
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Cited by:
  1. Alexey Kushnir, 2013. "On the equivalence between Bayesian and dominant strategy implementation: the case of correlated types," ECON - Working Papers 129, Department of Economics - University of Zurich.
  2. Jansen, Marcel, 2004. "Can Job Competition Prevent Hold-Ups?," IZA Discussion Papers 988, Institute for the Study of Labor (IZA).
  3. Dirk Bergemann & Stephen Morris, 2011. "Robust Mechanism Design: An Introduction," Levine's Working Paper Archive 786969000000000187, David K. Levine.
  4. Parreiras, Sergio O., 2005. "Correlated information, mechanism design and informational rents," Journal of Economic Theory, Elsevier, vol. 123(2), pages 210-217, August.
  5. Ángel Hernando Veciana, 2001. "Competition Among Auctioneers," Working Papers. Serie AD 2001-18, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  6. Hernando-Veciana, Angel, 2005. "Competition among auctioneers in large markets," Journal of Economic Theory, Elsevier, vol. 121(1), pages 107-127, March.

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