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An implementation of the general optimal mechanism in Esö and Szentes (2007)

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  • Liu, Dongri
  • Lu, Jingfeng

Abstract

In this paper, we provide an implementation of the optimal mechanism of Esö and Szentes (2007) for their general environment without assuming constant marginal utility (in the first-stage type) for the buyers. Our implementation is carried out through a three-stage handicap auction. In stage 1, each buyer, knowing his first-stage type, is required to select a handicap menu by paying a menu fee. A higher menu fee would lead to a more favorable handicap menu, which charges a lower handicap fee for every possible handicap level. In stage 2, each buyer, informed of his second-stage signal, is required to select a handicap by paying a handicap fee specified by his early chosen handicap menu. In stage 3, all buyers compete for the object via a second-price auction with handicaps. The highest bidder wins and pays the sum of his chosen handicap and the second-highest bid.

Suggested Citation

  • Liu, Dongri & Lu, Jingfeng, 2025. "An implementation of the general optimal mechanism in Esö and Szentes (2007)," Games and Economic Behavior, Elsevier, vol. 151(C), pages 82-94.
    • Handle: RePEc:eee:gamebe:v:151:y:2025:i:c:p:82-94
    DOI: 10.1016/j.geb.2025.02.014
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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