IDEAS home Printed from https://ideas.repec.org/p/uts/ecowps/53.html
   My bibliography  Save this paper

Auction Design by an Informed Seller: The Optimality of Reserve Price Signaling

Author

Listed:
  • Xin Zhao

    (Economics Discipline Group, University of Technology Sydney)

Abstract

This paper studies mechanism design by a seller privately informed of the quality of an indivisible object. The privacy of the seller�s information matters for mechanism design: selecting a mechanism that maximizes the seller�s profit when her information is public is not incentive compatible for the seller when her information is private, as a lower-quality seller has an incentive to mimic a higher-quality seller. I show that reserve prices are the least costly device to separate higher-quality sellers from lower-quality ones. In equilibria that maximize the expected profit of every type of the seller among all separating equilibria, the lowest-quality seller adopts her public-information optimal mechanism, and each higher-quality seller adopts a mechanism that differs from her public-information optimal mechanism only in that the reserve prices are higher.

Suggested Citation

  • Xin Zhao, 2018. "Auction Design by an Informed Seller: The Optimality of Reserve Price Signaling," Working Paper Series 53, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    • Handle: RePEc:uts:ecowps:53
    as

    Download full text from publisher

    File URL: https://www.uts.edu.au/sites/default/files/2019-01/Auction%20Design%20by%20an%20Informed%20Seller_Xin%20Zhao_CJE.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Myerson, Roger B, 1983. "Mechanism Design by an Informed Principal," Econometrica, Econometric Society, vol. 51(6), pages 1767-1797, November.
    2. Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, vol. 60(1), pages 1-42, January.
    3. Jullien, B. & Mariotti, T., 2006. "Auction and the informed seller problem," Games and Economic Behavior, Elsevier, vol. 56(2), pages 225-258, August.
    4. Banks, Jeffrey S & Sobel, Joel, 1987. "Equilibrium Selection in Signaling Games," Econometrica, Econometric Society, vol. 55(3), pages 647-661, May.
    5. Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March.
    6. Tröger, Thomas & Mylovanov, Timofiy, 2012. "Mechanism design by an informed principal: the quasi-linear private-values case," Working Papers 12-14, University of Mannheim, Department of Economics.
    7. Maskin, Eric & Tirole, Jean, 1990. "The Principal-Agent Relationship with an Informed Principal: The Case of Private Values," Econometrica, Econometric Society, vol. 58(2), pages 379-409, March.
    8. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    9. Cai, Hongbin & Riley, John & Ye, Lixin, 2007. "Reserve price signaling," Journal of Economic Theory, Elsevier, vol. 135(1), pages 253-268, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Onur A. Koska & Frank Stähler, 2022. "Reserve Prices as Signals," CESifo Working Paper Series 9581, CESifo.
    2. Toshihiro Tsuchihashi, 2020. "Reserve price signaling in first-price auctions with an uncertain number of bidders," International Journal of Game Theory, Springer;Game Theory Society, vol. 49(4), pages 1081-1103, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xin Zhao, 2023. "Auction design by an informed seller: A foundation of reserve price signalling," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(3), pages 1161-1190, August.
    2. Koessler, Frédéric & Skreta, Vasiliki, 2016. "Informed seller with taste heterogeneity," Journal of Economic Theory, Elsevier, vol. 165(C), pages 456-471.
    3. Vasiliki Skreta, 2011. "On the informed seller problem: optimal information disclosure," Review of Economic Design, Springer;Society for Economic Design, vol. 15(1), pages 1-36, March.
    4. Onur A. Koska & Frank Stähler, 2022. "Reserve Prices as Signals," Working Papers in Economics 22/10, University of Canterbury, Department of Economics and Finance.
    5. Brocas, Isabelle, 2013. "Selling an asset to a competitor," European Economic Review, Elsevier, vol. 57(C), pages 39-62.
    6. Bara Kim & Seung Han Yoo, 2022. "Grand Mechanism and Population Uncertainty," Discussion Paper Series 2204, Institute of Economic Research, Korea University.
    7. Bedard, Nicholas C., 2017. "The strategically ignorant principal," Games and Economic Behavior, Elsevier, vol. 102(C), pages 548-561.
    8. Suvorov Anton & Tsybuleva Natalia, 2010. "Advice by an Informed Intermediary: Can You Trust Your Broker?," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-35, November.
    9. Cramton Peter C. & Palfrey Thomas R., 1995. "Ratifiable Mechanisms: Learning from Disagreement," Games and Economic Behavior, Elsevier, vol. 10(2), pages 255-283, August.
    10. Marco Ottaviani & Andrea Prat, 2001. "The Value of Public Information in Monopoly," Econometrica, Econometric Society, vol. 69(6), pages 1673-1683, November.
    11. Dimitris Kostamis & Damian R. Beil & Izak Duenyas, 2009. "Total-Cost Procurement Auctions: Impact of Suppliers' Cost Adjustments on Auction Format Choice," Management Science, INFORMS, vol. 55(12), pages 1985-1999, December.
    12. Anastasios Dosis, 2022. "On the informed principal model with common values," RAND Journal of Economics, RAND Corporation, vol. 53(4), pages 792-825, December.
    13. Koessler, Frederic & Skreta, Vasiliki, 2019. "Selling with evidence," Theoretical Economics, Econometric Society, vol. 14(2), May.
    14. Bilgehan Karabay, 2017. "Optimal Regulation of Multinationals under Collusion," The World Economy, Wiley Blackwell, vol. 40(8), pages 1687-1706, August.
    15. Nishimura, Takeshi, 2022. "Informed principal problems in bilateral trading," Journal of Economic Theory, Elsevier, vol. 204(C).
    16. Davoodalhosseini, Seyed Mohammadreza, 2019. "Constrained efficiency with adverse selection and directed search," Journal of Economic Theory, Elsevier, vol. 183(C), pages 568-593.
    17. Serkan Kucuksenel, 2012. "Interim efficient auctions with interdependent valuations," Journal of Economics, Springer, vol. 106(1), pages 83-93, May.
    18. Markus Brunnermeier & Rohit Lamba & Carlos Segura-Rodriguez, 2020. "Inverse Selection," Working Papers 2020-50, Princeton University. Economics Department..
    19. Charles Z. Zheng, 2016. "Goethe's secret reserve price," International Journal of Economic Theory, The International Society for Economic Theory, vol. 12(1), pages 41-48, March.
    20. Francesco Giovannoni & Toomas Hinnosaar, 2022. "Pricing Novel Goods," Papers 2208.04985, arXiv.org.

    More about this item

    Keywords

    Mechanism design; informed principal; reserve price; signaling;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:uts:ecowps:53. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Duncan Ford (email available below). General contact details of provider: https://edirc.repec.org/data/edutsau.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.