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Auctions with costly information acquisition

  • Jacques Crémer

    ()

  • Yossi Spiegel

    ()

  • Charles Zheng

    ()

We characterize optimal selling mechanisms in auction environments where bidders must incur a cost to learn their valuations. These mechanisms specify for each period, as a function of the bids in previous periods, which new potential buyers should be asked to bid. In addition, these mechanisms must induce the bidders to acquire information about their valuations and to reveal this information truthfully. Using a generalized Groves principle, we prove a very general full extraction of the surplus result: the seller can obtain the same profit as if he had full control over the bidders' acquisition of information and could have observed directly their valuations once they are informed. We also present appealing implementations of the optimal mechanism in special cases.

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Article provided by Springer in its journal Economic Theory.

Volume (Year): 38 (2009)
Issue (Month): 1 (January)
Pages: 41-72

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Handle: RePEc:spr:joecth:v:38:y:2009:i:1:p:41-72
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  1. Bergemann, Dirk & Pesendorfer, Martin, 2007. "Information structures in optimal auctions," Journal of Economic Theory, Elsevier, vol. 137(1), pages 580-609, November.
  2. Cremer, Jacques & Khalil, Fahad, 1992. "Gathering Information before Signing a Contract," American Economic Review, American Economic Association, vol. 82(3), pages 566-78, June.
  3. Khalil, F & Rochet, J-C, 1997. "Contracts and Productive Information Gathering," Discussion Papers in Economics at the University of Washington 97-16, Department of Economics at the University of Washington.
  4. Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Economics Series Working Papers 1999-W12, University of Oxford, Department of Economics.
  5. Jacques Cremer & Yossi Spiegel & Charles Z. Zheng, 2005. "Optimal Search Auctions," Discussion Papers 1421, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Nicola Persico, 1997. "Information Acquisition in Auctions," UCLA Economics Working Papers 762, UCLA Department of Economics.
  7. Crémer, Jacques & Khalil, Fahad & Rochet, Jean-Charles, 1996. "Strategic Information Gathering Before a Contract Is Offered," IDEI Working Papers 61, Institut d'Économie Industrielle (IDEI), Toulouse.
  8. Dirk Bergemann & Juuso Valimaki, 2002. "Information Acquisition and Efficient Mechanism Design," Econometrica, Econometric Society, vol. 70(3), pages 1007-1033, May.
  9. Crémer, Jacques & Spiegel, Yossi & Zheng, Charles Zhoucheng, 2006. "Optimal Search Auctions with Correlated Bidder Types," Staff General Research Papers 12663, Iowa State University, Department of Economics.
  10. Preston McAfee, R. & McMillan, John, 1988. "Search mechanisms," Journal of Economic Theory, Elsevier, vol. 44(1), pages 99-123, February.
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  12. Chakraborty, Indranil & Kosmopoulou, Georgia, 2001. "Auctions with endogenous entry," Economics Letters, Elsevier, vol. 72(2), pages 195-200, August.
  13. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  14. Lewis, Tracy R & Sappington, David E M, 1997. "Information Management in Incentive Problems," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 796-821, August.
  15. Burguet, Roberto, 1996. "Optimal Repeated Purchases When Sellers Are Learning about Costs," Journal of Economic Theory, Elsevier, vol. 68(2), pages 440-455, February.
  16. Ye Lixin, 2004. "Optimal Auctions with Endogenous Entry," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 4(1), pages 1-29, October.
  17. Myerson, Roger B, 1986. "Multistage Games with Communication," Econometrica, Econometric Society, vol. 54(2), pages 323-58, March.
  18. Stegeman, Mark, 1996. "Participation Costs and Efficient Auctions," Journal of Economic Theory, Elsevier, vol. 71(1), pages 228-259, October.
  19. M. L. Weitzman, 1978. "Optimal Search for the Best Alternative," Working papers 214, Massachusetts Institute of Technology (MIT), Department of Economics.
  20. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
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