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(No) Foundations of dominant-strategy mechanisms: a comment on Chung and Ely (2007)

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  • Tilman Börgers

    (University of Michigan)

Abstract

This comment revisits Chung and Ely (Rev Econ Stud 74:447–476, 2007) in which robustly optimal auctions where investigated. Chung and Ely used a maxmin approach to define robust optimality. Chung and Ely provided conditions under which dominant strategy auctions are robustly optimal in their sense. This comment proposes a refinement of Chung and Ely’s criterion and shows that, with this refined criterion, dominant strategy auctions are not optimal if there are at least three bidders. According to the refinement the auctioneer should not choose dominated auctions, that is, auctions for which there exist other mechanisms that never generate lower expected revenue, and sometimes higher expected revenue. We construct such a dominating mechanism for dominant strategy auctions. The construction exploits the possibility of side bets when beliefs are not derived from common priors. Chung and Ely (Rev Econ Stud 74:447–476, 2007) admitted such beliefs.

Suggested Citation

  • Tilman Börgers, 2017. "(No) Foundations of dominant-strategy mechanisms: a comment on Chung and Ely (2007)," Review of Economic Design, Springer;Society for Economic Design, vol. 21(2), pages 73-82, June.
    • Handle: RePEc:spr:reecde:v:21:y:2017:i:2:d:10.1007_s10058-017-0201-0
    DOI: 10.1007/s10058-017-0201-0
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    References listed on IDEAS

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    1. Kim-Sau Chung & J.C. Ely, 2007. "Foundations of Dominant-Strategy Mechanisms," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(2), pages 447-476.
    2. , & Smith, Doug, 2014. "Robust mechanism design and dominant strategy voting rules," Theoretical Economics, Econometric Society, vol. 9(2), May.
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    10. Neeman, Zvika, 2003. "The effectiveness of English auctions," Games and Economic Behavior, Elsevier, vol. 43(2), pages 214-238, May.
    11. Morris, Stephen, 1994. "Trade with Heterogeneous Prior Beliefs and Asymmetric Information," Econometrica, Econometric Society, vol. 62(6), pages 1327-1347, November.
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    Cited by:

    1. Carroll, Gabriel, 2019. "Robust incentives for information acquisition," Journal of Economic Theory, Elsevier, vol. 181(C), pages 382-420.
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    3. Mukherjee, Saptarshi & Muto, Nozomu & Sen, Arunava, 2024. "Implementation in undominated strategies with applications to auction design, public good provision and matching," Journal of Economic Theory, Elsevier, vol. 216(C).

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    More about this item

    Keywords

    Optimal auctions; Robust mechanism design; Side bets; Maxmin foundations;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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