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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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  1. Dirk Bergemann & Juuso Vaimaki, 2000. "Information Acquisition and Efficient Mechanism Design," Cowles Foundation Discussion Papers 1248, Cowles Foundation for Research in Economics, Yale University.
  2. Ye Lixin, 2004. "Optimal Auctions with Endogenous Entry," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 4(1), pages 1-29, October.
  3. Jingfeng Lu, 2009. "Auction design with opportunity cost," Economic Theory, Springer, vol. 38(1), pages 73-103, January.
  4. Dirk Bergemann & Juuso Valimaki, 2005. "Information in Mechanism Design," Cowles Foundation Discussion Papers 1532, Cowles Foundation for Research in Economics, Yale University.
  5. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  6. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
  7. Ye, Lixin, 2007. "Indicative bidding and a theory of two-stage auctions," Games and Economic Behavior, Elsevier, vol. 58(1), pages 181-207, January.
  8. Diego Moreno & John Wooders, 2006. "Auctions with heterogeneous entry costs," Economics Working Papers we061806, Universidad Carlos III, Departamento de Economía.
  9. repec:cup:cbooks:9780521536721 is not listed on IDEAS
  10. Jingfeng Lu, 2010. "Entry Coordination And Auction Design With Private Costs Of Information Acquisition," Economic Inquiry, Western Economic Association International, vol. 48(2), pages 274-289, 04.
  11. McAdams, David, 2007. "Adjustable supply in uniform price auctions: Non-commitment as a strategic tool," Economics Letters, Elsevier, vol. 95(1), pages 48-53, April.
  12. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-92, June.
  13. Paul Milgrom & Ilya Segal, 2002. "Envelope Theorems for Arbitrary Choice Sets," Econometrica, Econometric Society, vol. 70(2), pages 583-601, March.
  14. 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.
  15. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
  16. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
  17. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
  18. Richard L. Fullerton & R. Preston McAfee, 1999. "Auctioning Entry into Tournaments," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 573-605, June.
  19. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-31, July.
  20. repec:cup:cbooks:9780521551847 is not listed on IDEAS
  21. J. Riley & E. Maskin, 1981. "Optimal Auctions with Risk Averse Buyers," Working papers 311, Massachusetts Institute of Technology (MIT), Department of Economics.
  22. Stegeman, Mark, 1996. "Participation Costs and Efficient Auctions," Journal of Economic Theory, Elsevier, vol. 71(1), pages 228-259, October.
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