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Auctions with Dynamic Costly Information Acquisition

Author

Listed:
  • Negin Golrezaei

    () (Marshall School of Business, University of Southern California, Los Angeles, California 90089)

  • Hamid Nazerzadeh

    () (Marshall School of Business, University of Southern California, Los Angeles, California 90089)

Abstract

We study the mechanism design problem for a seller of an indivisible good in a setting where privately informed buyers can acquire additional information and refine their valuations for the good at a cost. For this setting, we propose optimal (revenue-maximizing) and efficient (welfare-maximizing) mechanisms that induce a right level of investment in information acquisition. We show that because information is costly, in the optimal and even the efficient mechanisms, not all buyers would obtain the additional information. In fact, these mechanisms incentivize buyers with higher initial valuations to acquire information.

Suggested Citation

  • Negin Golrezaei & Hamid Nazerzadeh, 2017. "Auctions with Dynamic Costly Information Acquisition," Operations Research, INFORMS, vol. 65(1), pages 130-144, February.
  • Handle: RePEc:inm:oropre:v:65:y:2017:i:1:p:130-144
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    File URL: http://dx.doi.org/10.1287/opre.2016.1558
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    References listed on IDEAS

    as
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    Keywords

    mechanism design; auctions; online advertising;

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