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Auction design with endogenously correlated buyer types

Listed author(s):
  • Krähmer, Daniel
Registered author(s):

    This paper studies optimal auction design when the seller can affect the buyersʼ valuations through an unobservable ex ante investment. The key insight is that the optimal mechanism may have the seller play a mixed investment strategy so as to create correlation between the buyersʼ otherwise (conditionally) independent valuations. Assuming that the seller announces the mechanism before investing, the paper establishes conditions on the investment technology so that a mechanism exists which leaves buyers no information rent and leaves the seller indifferent between his investments. Under these conditions, the seller can, in fact, extract the first best surplus almost fully.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0022053111001670
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    Article provided by Elsevier in its journal Journal of Economic Theory.

    Volume (Year): 147 (2012)
    Issue (Month): 1 ()
    Pages: 118-141

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    Handle: RePEc:eee:jetheo:v:147:y:2012:i:1:p:118-141
    DOI: 10.1016/j.jet.2011.11.015
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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    1. Obara Ichiro, 2008. "The Full Surplus Extraction Theorem with Hidden Actions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 8(1), pages 1-28, March.
    2. Dominique M. Demougin & Devon A. Garvie, 1991. "Contractual Design with Correlated Information under Limited Liability," RAND Journal of Economics, The RAND Corporation, vol. 22(4), pages 477-489, Winter.
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    13. repec:wsi:wschap:9789814374590_0012 is not listed on IDEAS
    14. Dirk Bergemann & Karl H. Schlag, 2008. "Pricing without Priors," Journal of the European Economic Association, MIT Press, vol. 6(2-3), pages 560-569, 04-05.
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