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Optimal Auctions with Information Acquisition

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  • Xianwen Shi

Abstract

This paper studies optimal auction design in a private value setting with endogenous information acquisition. First, we develop a general framework for modeling information acquisition when a seller wants to sell an object to one of several potential buyers who can each gather information about their valuations prior to participation. We then show that under certain conditions, standard auctions with a reserve price remain optimal, but the optimal reserve price lies between the mean valuation and the standard reserve price in Myerson (1981). We provide sufficient conditions under which the value of information to the seller is positive, and also characterize the necessary and sufficient conditions under which equilibrium information acquisition in private value auctions is socially excessive. The key to the analysis is the insight that buyer incentives to acquire information become stronger as the reserve price moves toward the mean valuation.

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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-302.

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Length: 42 pages
Date of creation: 03 Dec 2007
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-302

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Keywords: optimal auctions; information acquisition; rotation order; informational efficiency;

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Citations

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Cited by:
  1. Benjamin Lester & Ludo Visschers & Ronald Wolthoff, 2013. "Competing with Asking Prices," Working Papers, University of Toronto, Department of Economics tecipa-471, University of Toronto, Department of Economics.
  2. Terstiege, Stefan, 2013. "Precontractual Investigation and Sequential Screening," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 429, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. Pancs, Romans, 2013. "Sequential negotiations with costly information acquisition," Games and Economic Behavior, Elsevier, Elsevier, vol. 82(C), pages 522-543.
  4. Li, Shengyu & Tian, Guoqiang, 2008. "Equilibria in Second Price Auctions with Information Acquisition," MPRA Paper 41210, University Library of Munich, Germany.
  5. Lagerlöf, Johan N. M. & Schottmüller, Christoph, 2013. "Monopoly Insurance with Endogenous Information," CEPR Discussion Papers, C.E.P.R. Discussion Papers 9774, C.E.P.R. Discussion Papers.
  6. Ennio Bilancini & Leonardo Boncinelli, 2014. "Signaling with Costly Acquisition of Signals," Center for Economic Research (RECent), University of Modena and Reggio E., Dept. of Economics 100, University of Modena and Reggio E., Dept. of Economics.
  7. Terstiege, Stefan, 2012. "Endogenous information and stochastic contracts," Games and Economic Behavior, Elsevier, Elsevier, vol. 76(2), pages 535-547.
  8. Kyungmin Kim & Frances Zhiyun Xu Lee, 2014. "Information Acquisition in a War of Attrition," American Economic Journal: Microeconomics, American Economic Association, American Economic Association, vol. 6(2), pages 37-78, May.
  9. Tian, Guoqiang & Xiao, Mingjun, 2007. "Endogenous Information Acquisition on Opponents' Valuations in Multidimensional First Price Auctions," MPRA Paper 41214, University Library of Munich, Germany, revised Jan 2010.
  10. Szech, Nora, 2011. "Optimal disclosure of costly information packages in auctions," Journal of Mathematical Economics, Elsevier, vol. 47(4-5), pages 462-469.

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