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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. Dirk Bergemann & Stephen Morris, 2012. "Robust Mechanism Design," World Scientific Book Chapters, in: Robust Mechanism Design The Role of Private Information and Higher Order Beliefs, chapter 2, pages 49-96, World Scientific Publishing Co. Pte. Ltd..
    3. Takuro Yamashita & Shuguang Zhu, 2022. "On the Foundations of Ex Post Incentive-Compatible Mechanisms," American Economic Journal: Microeconomics, American Economic Association, vol. 14(4), pages 494-514, November.
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    7. Alex Gershkov & Jacob K. Goeree & Alexey Kushnir & Benny Moldovanu & Xianwen Shi, 2013. "On the Equivalence of Bayesian and Dominant Strategy Implementation," Econometrica, Econometric Society, vol. 81(1), pages 197-220, January.
    8. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
    9. , & Smith, Doug, 2014. "Robust mechanism design and dominant strategy voting rules," Theoretical Economics, Econometric Society, vol. 9(2), May.
    10. Borgers, Tilman & Krahmer, Daniel & Strausz, Roland, 2015. "An Introduction to the Theory of Mechanism Design," OUP Catalogue, Oxford University Press, number 9780199734023.
    11. Morris, Stephen, 1995. "The Common Prior Assumption in Economic Theory," Economics and Philosophy, Cambridge University Press, vol. 11(2), pages 227-253, October.
    12. Alexey Kushnir, 2013. "On the equivalence between Bayesian and dominant strategy implementation: the case of correlated types," ECON - Working Papers 129, Department of Economics - University of Zurich.
    13. Neeman, Zvika, 2003. "The effectiveness of English auctions," Games and Economic Behavior, Elsevier, vol. 43(2), pages 214-238, May.
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    Cited by:

    1. Chen, Yi-Chun & Li, Jiangtao, 2018. "Revisiting the foundations of dominant-strategy mechanisms," Journal of Economic Theory, Elsevier, vol. 178(C), pages 294-317.
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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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