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Auctions with Private Entry Costs

Author

Listed:
  • Kaplan, Todd
  • Sela, Aner

Abstract

We study auctions where bidders have private information about their entry costs and the seller does not benefit from these entry costs. We consider a symmetric environment where all bidders have the same value for the object being sold, and also an asymmetric environment where bidders may have different valuations for the object. In these environments, the seller’s pay-off as well as the social surplus may either increase or decrease in the number of bidders though not necessarily in the same direction. The auction designs that maximize the social surplus or the seller’s pay-off are analysed.

Suggested Citation

  • Kaplan, Todd & Sela, Aner, 2003. "Auctions with Private Entry Costs," CEPR Discussion Papers 4080, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4080
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    References listed on IDEAS

    as
    1. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    2. Elberfeld, Walter & Wolfstetter, Elmar, 1999. "A dynamic model of Bertrand competition with entry," International Journal of Industrial Organization, Elsevier, vol. 17(4), pages 513-525, May.
    3. Thomas, Charles J., 2002. "The effect of asymmetric entry costs on Bertrand competition," International Journal of Industrial Organization, Elsevier, vol. 20(5), pages 589-609, May.
    4. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
    5. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
    6. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-392, June.
    7. Todd R. Kaplan & Shmuel Zamir, 2001. "A Note on Revenue Effects of Asymmetry in Private-Value Auctions," Discussion Papers 0110, Exeter University, Department of Economics.
    8. Smith, James L. & Levin, Dan, 1996. "Ranking Auctions with Risk Averse Bidders," Journal of Economic Theory, Elsevier, vol. 68(2), pages 549-561, February.
    9. Engelbrecht-Wiggans Richard, 1993. "Optimal Auctions Revisited," Games and Economic Behavior, Elsevier, vol. 5(2), pages 227-239, April.
    10. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-599, June.
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    Citations

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    Cited by:

    1. Uwe Dulleck & Jiong Gong & Jianpei Li, 2015. "Contracting for Infrastructure Projects as Credence Goods," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(3), pages 328-345, June.
    2. Cao, Xiaoyong & Tian, Guoqiang, 2010. "Equilibria in first price auctions with participation costs," Games and Economic Behavior, Elsevier, vol. 69(2), pages 258-273, July.
    3. Lu, Jingfeng, 2006. "Endogenous entry and auctions design with private participation costs," MPRA Paper 934, University Library of Munich, Germany.
    4. Jinhyuk Lee & Jaeok Park, 2016. "Second-price auctions with sequential and costly participation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(3), pages 567-586, August.
    5. Fan, Cuihong & Wolfstetter, Elmar, 2008. "Procurement with costly bidding, optimal shortlisting, and rebates," Economics Letters, Elsevier, vol. 98(3), pages 327-334, March.
    6. Antonio Miralles, 2005. "Auction theory, sequential local service privatization, and the effects of geographical scale economies on effective competition," Working Papers in Economics 132, Universitat de Barcelona. Espai de Recerca en Economia.
    7. Hu, Luke, 2012. "Optimal Use of Rewards as Commitment Device When Bidding is Costly," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 377, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    8. Hsueh, Shao-Chieh & Tian, Guoqiang, 2009. "Nonratifiability of the Cartel Mechanism in First-Price Sealed-Bid Auction with Participation Costs," MPRA Paper 41202, University Library of Munich, Germany, revised Oct 2010.
    9. repec:spr:joecth:v:65:y:2018:i:2:d:10.1007_s00199-016-1028-6 is not listed on IDEAS
    10. Cao, Xiaoyong & Tian, Guoqiang, 2007. "Second-price Auction with Two-Dimensional Private Information on Values and Participation Costs," MPRA Paper 41224, University Library of Munich, Germany.
    11. Xiaoyong Cao & Guofu Tan & Guoqiang Tian & Okan Yilankaya, 2018. "Equilibria in second-price auctions with private participation costs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 65(2), pages 231-249, March.
    12. Xiaoyong Cao & Guoqiang Tian, 2013. "Second-Price Auctions with Different Participation Costs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(1), pages 184-205, March.

    More about this item

    Keywords

    asymmetric auctions; entry costs; symmetric auctions;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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