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Optimal search auctions

Author

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  • Charles Zhoucheng Zheng
  • Jacques Cremer
  • Yossef Spiegel

Abstract

We study the design of profit maximizing single unit auctions under the assumption that the seller needs to incur costs to contact prospective bidders and inform them about the auction. When bidders' types are independent (with^Mpossibly bidder-specific distributions) and their valuations are possibly interdependent, the seller's problem can be reduced to a (stochastic, history-contingent) search problem in which the surplus is measured in terms of virtual utilities minus search costs. Compared to the socially efficient mechanism, the optimal mechanism features fewer participants, longer search conditional on the same set of participants, and inefficient sequence of entry. When bidders' types are correlated, the seller cannot fully extract the social surplus for sure but can extract it with an arbitrarily high probability.

Suggested Citation

  • Charles Zhoucheng Zheng & Jacques Cremer & Yossef Spiegel, 2004. "Optimal search auctions," Econometric Society 2004 North American Summer Meetings 615, Econometric Society.
  • Handle: RePEc:ecm:nasm04:615
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Polanski Arnold & Cardona Daniel, 2012. "Multilevel Mediation in Symmetric Trees," Review of Network Economics, De Gruyter, vol. 11(3), pages 1-23, September.
    2. Laurent Lamy, 2013. "“Upping the ante”: how to design efficient auctions with entry?," RAND Journal of Economics, RAND Corporation, vol. 44(2), pages 194-214, June.
    3. Jacques Crémer & Yossi Spiegel & Charles Zheng, 2009. "Auctions with costly information acquisition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(1), pages 41-72, January.
    4. Gal, Shmuel & Landsberger, Michael & Nemirovski, Arkadi, 2007. "Participation in auctions," Games and Economic Behavior, Elsevier, vol. 60(1), pages 75-103, July.
    5. Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," American Economic Review, American Economic Association, vol. 99(4), pages 1544-1575, September.
    6. Laurent Lamy, 2010. ""Upping the ante": How to design efficient auctions with entry?," Working Papers halshs-00564888, HAL.
    7. Szech, Nora, 2011. "Optimal disclosure of costly information packages in auctions," Journal of Mathematical Economics, Elsevier, vol. 47(4-5), pages 462-469.
    8. 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.
    9. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications, Elsevier.
    10. Laurent Lamy & Philippe Jehiel, 2016. "On the benefits of set-asides," Post-Print hal-01688237, HAL.
    11. Shi, Xianwen, 2012. "Optimal auctions with information acquisition," Games and Economic Behavior, Elsevier, vol. 74(2), pages 666-686.
    12. Cremer, Jacques & Spiegel, Yossi & Zheng, Charles Z., 2006. "Optimal search auctions with correlated bidder types," Economics Letters, Elsevier, vol. 93(1), pages 94-100, October.
    13. Hagedorn, Marcus, 2009. "The value of information for auctioneers," Journal of Economic Theory, Elsevier, vol. 144(5), pages 2197-2208, September.
    14. Li, Daniel Z., 2017. "Ranking equilibrium competition in auctions with participation costs," Economics Letters, Elsevier, vol. 153(C), pages 47-50.
    15. Pancs, Romans, 2013. "Sequential negotiations with costly information acquisition," Games and Economic Behavior, Elsevier, vol. 82(C), pages 522-543.

    More about this item

    Keywords

    optimal auction; optimal search; endogenous entry;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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