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The Variable Value Environment: Auctions and Actions

Author

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  • Michael Schwarz

    () (University of California at Berkeley and NBER)

  • Konstantin Sonin

    () (New Economic School/CEFIR, Moscow)

Abstract

We model an environment, where bidders’ private values may change over time as a result of both costly private actions and exogenous shocks. Examples of private actions include investment and entry decisions; shocks might be due to exogenous changes in a potential buyer’s circumstances. We describe an efficient auction mechanism that maximizes the final value of the object to the winning bidder net of the total cost of investment by all agents. In particular, we show that, assuming that the auctioneer does not have full commitment power, costly signalling is necessary for efficient entry when agents receive private information both before and after they make the entry decision. To rule out pooling equilibria that coexist with the efficient equilibrium in the basic mechanism, we introduce a virtual-implementation-style mechanism that (i) is almost efficient; (ii) forces players to coordinate on the separating equilibrium; and (iii) is simple enough to be potentially useful in practice.

Suggested Citation

  • Michael Schwarz & Konstantin Sonin, 2001. "The Variable Value Environment: Auctions and Actions," Working Papers w0020, Center for Economic and Financial Research (CEFIR), revised Oct 2005.
  • Handle: RePEc:cfr:cefirw:w0020
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    References listed on IDEAS

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    Cited by:

    1. Lange, Andreas & List, John A. & Price, Michael K., 2011. "Auctions with resale when private values are uncertain: Evidence from the lab and field," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 54-64, January.
    2. Michael Schwarz & Sergei Severinov, 2010. "Investment Tournaments: When Should a Rational Agent Put All Eggs in One Basket?," Journal of Labor Economics, University of Chicago Press, vol. 28(4), pages 893-922, October.
    3. Sonin Konstantin, 2004. "Private interest in public tenders: no revenue, no efficiency and no social benefits," EERC Working Paper Series 00-111e, EERC Research Network, Russia and CIS.
    4. Giacomo Calzolari & Alessandro Pavan, 2006. "Monopoly with resale," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 362-375, June.
    5. Schmöller, Arno, 2010. "Bidding Behavior, Seller Strategies, and the Utilization of Information in Auctions for Complex Goods," Munich Dissertations in Economics 11175, University of Munich, Department of Economics.

    More about this item

    Keywords

    auctions; efficient mechanism design;

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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