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Efficient and optimal mechanisms with private information acquisition costs

  • Lu, Jingfeng
  • Ye, Lixin

In auctions with private information acquisition costs, we completely characterize (socially) efficient and (revenue) optimal two-stage mechanisms, with the first stage being an entry right allocation mechanism and the second stage being a traditional private good provision mechanism. Both efficiency and revenue optimality require that the second-stage selling mechanism be ex post efficient and the number of entry slots be endogenously determined. We show that both efficient and optimal entry can be truthfully implemented in dominant strategies, and can also be implemented via all-pay, though not uniform-price or discriminatory-price, auctions.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 148 (2013)
Issue (Month): 1 ()
Pages: 393-408

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Handle: RePEc:eee:jetheo:v:148:y:2013:i:1:p:393-408
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  1. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
  2. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521551847, November.
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  4. Jingfeng Lu, 2009. "Auction design with opportunity cost," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(1), pages 73-103, January.
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  13. J. Riley & E. Maskin, 1981. "Optimal Auctions with Risk Averse Buyers," Working papers 311, Massachusetts Institute of Technology (MIT), Department of Economics.
  14. Diego Moreno & John Wooders, 2011. "Auctions with heterogeneous entry costs," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 313-336, 06.
  15. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
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  18. Dirk Bergemann & Juuso Valimaki, 2002. "Information Acquisition and Efficient Mechanism Design," Econometrica, Econometric Society, vol. 70(3), pages 1007-1033, May.
  19. Ye Lixin, 2004. "Optimal Auctions with Endogenous Entry," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 4(1), pages 1-29, October.
  20. Vallen, Marc A. & Bullinger, Christopher D., 1999. "The Due Diligence Process for Acquiring and Building Power Plants," The Electricity Journal, Elsevier, vol. 12(8), pages 28-37, October.
  21. Ye, Lixin, 2007. "Indicative bidding and a theory of two-stage auctions," Games and Economic Behavior, Elsevier, vol. 58(1), pages 181-207, January.
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