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Optimal advertising of auctions

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  • Szech, Nora

Abstract

We study a symmetric independent private values auction model where the revenue-maximizing seller faces a cost cn of attracting n bidders to the auction. If the distribution of valuations possesses an increasing failure rate (IFR), the seller overinvests in attracting bidders compared to the social optimum. Conversely, if the distribution is DFR, the seller underinvests compared to the social optimum. If the distribution of valuations becomes more dispersed, both, a revenue- and a welfare-maximizing seller, attract more bidders.

Suggested Citation

  • Szech, Nora, 2011. "Optimal advertising of auctions," Journal of Economic Theory, Elsevier, vol. 146(6), pages 2596-2607.
  • Handle: RePEc:eee:jetheo:v:146:y:2011:i:6:p:2596-2607
    DOI: 10.1016/j.jet.2011.10.010
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    References listed on IDEAS

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    1. French, Kenneth R & McCormick, Robert E, 1984. "Sealed Bids, Sunk Costs, and the Process of Competition," The Journal of Business, University of Chicago Press, vol. 57(4), pages 417-441, October.
    2. Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-194, March.
    3. Moldovanu, Benny & Sela, Aner & Shi, Xianwen, 2008. "Competing auctions with endogenous quantities," Journal of Economic Theory, Elsevier, vol. 141(1), pages 1-27, July.
    4. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
    5. Dirk Bergemann & Juuso Valimaki, 2005. "Information in Mechanism Design," Cowles Foundation Discussion Papers 1532, Cowles Foundation for Research in Economics, Yale University.
    6. Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071.
    7. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-599, June.
    8. Carl Shapiro, 1980. "Advertising and Welfare: Comment," Bell Journal of Economics, The RAND Corporation, vol. 11(2), pages 749-752, Autumn.
    9. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
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    Citations

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    Cited by:

    1. Nikolaus Schweizer & Nora Szech, 2016. "The Quantitative View of Myerson Regularity," CESifo Working Paper Series 5712, CESifo Group Munich.
    2. Christian Ewerhart, 2013. "Regular type distributions in mechanism design and $$\rho $$ -concavity," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 53(3), pages 591-603, August.
    3. Kirkegaard, René, 2014. "Ranking asymmetric auctions: Filling the gap between a distributional shift and stretch," Games and Economic Behavior, Elsevier, vol. 85(C), pages 60-69.
    4. Schweizer, Nikolaus & Szech, Nora, 2015. "The quantitative view of Myerson regularity," Discussion Papers, Research Unit: Economics of Change SP II 2015-307, Social Science Research Center Berlin (WZB).
    5. Schweizer, Nikolaus & Szech, Nora, 2015. "A quantitative version of Myerson regularity," Working Paper Series in Economics 76, Karlsruhe Institute of Technology (KIT), Department of Economics and Business Engineering.
    6. Li, Daniel Z., 2017. "Ranking equilibrium competition in auctions with participation costs," Economics Letters, Elsevier, vol. 153(C), pages 47-50.
    7. Fang, Rui & Li, Xiaohu, 2015. "Advertising a second-price auction," Journal of Mathematical Economics, Elsevier, vol. 61(C), pages 246-252.

    More about this item

    Keywords

    Auctions; Advertising; Order statistics;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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