The Role of Outside Options in Auction Design
This paper studies revenue maximizing auctions when buyers’ outside options depend on their private information. The set-up is very general and encompasses a large number of potential applications. The main novel message of our analysis is that with type-dependent non-participation payoffs, the revenue maximizing assignment of objects can crucially depend on the outside options that buyers face. Outside options can therefore affect the degree of efficiency of revenue maximizing auctions. We show that depending on the shape of outside options, sometimes an optimal mechanism will allocate the objects in an ex-post efficient way, and other times, buyers will obtain objects more often than it is efficient. Our characterization rings a bell of caution. Modeling buyers outside options as being independent of their private information, is with loss of generality and can lead to quite misleading intuitions. Our solution procedure can be useful also in other models where type-dependent outside options arise endogenously, because, for instance, buyers can collude or because there are competing sellers. Type-Dependent Outside Options: JEL D44, C7, C72.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fernando Branco, 1996. "Multiple unit auctions of an indivisible good," Economic Theory, Society for the Advancement of Economic Theory (SAET), vol. 8(1), pages 77-101.
- repec:att:wimass:9008 is not listed on IDEAS
- Christopher Avery & Terrence Hendershott, 2000. "Bundling and Optimal Auctions of Multiple Products," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 483-497.
- John G. Riley & William Samuelson, 1979.
UCLA Economics Working Papers
152, UCLA Department of Economics.
- Jorge Aseff & Hector Chade, 2004.
"An optimal auction with identity-dependent externalities,"
Econometric Society 2004 Latin American Meetings
254, Econometric Society.
- Jorge Aseff & Hector Chade, 2008. "An optimal auction with identity-dependent externalities," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 731-746.
- Hector Chade & Jorge Aseff, . "An Optimal Auction with Identity-Dependent Externalities," Working Papers 2133477, Department of Economics, W. P. Carey School of Business, Arizona State University.
- Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1996.
"How (Not) to Sell Nuclear Weapons,"
American Economic Review,
American Economic Association, vol. 86(4), pages 814-29, September.
- Jehiel, Philippe & Moldovanu, Benny & Stacchetti, Ennio, 1999.
"Multidimensional Mechanism Design for Auctions with Externalities,"
Journal of Economic Theory,
Elsevier, vol. 85(2), pages 258-293, April.
- Jehiel, Phillipe & Moldovanu, Benny & Stacchetti, E., 1997. "Multidimensional Mechanism Design for Auctions with Externalities," Sonderforschungsbereich 504 Publications 97-04, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
- Moldovanu, Benny & Jehiel, Philippe & Stacchetti, Ennio, 1997. "Multidimensional Mechanism Design for Auctions with Externalities," Papers 97-04, Sonderforschungsbreich 504.
- Dana, James Jr. & Spier, Kathryn E., 1994. "Designing a private industry : Government auctions with endogenous market structure," Journal of Public Economics, Elsevier, vol. 53(1), pages 127-147, January.
- Jehiel, Phillipe & Moldovanu, Benny, 1999.
"A Note on Revenue Maximization and Efficiency in Multi-Object Auctions,"
Sonderforschungsbereich 504 Publications
99-73, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
- Philippe Jehiel & Benny Moldovanu, 2001. "A note of revenue maximization and efficiency in multi-object auctions," Economics Bulletin, AccessEcon, vol. 3(2), pages 1-5.
- Jehiel, Philippe & Moldovanu, Benny, 1999. "A note on revenue maximization and efficiency in multi-object auctions," Papers 99-73, Sonderforschungsbreich 504.
- Jullien, Bruno, 2000.
"Participation Constraints in Adverse Selection Models,"
Journal of Economic Theory,
Elsevier, vol. 93(1), pages 1-47, July.
- Jullien, Bruno, 1997. "Participation Constraints in Adverse Selection Models," IDEI Working Papers 67, Institut d'Économie Industrielle (IDEI), Toulouse.
- Paul Klemperer, 2004.
"Auctions: Theory and Practice,"
2004-W09, Economics Group, Nuffield College, University of Oxford.
- Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December.
- J. Riley & E. Maskin, 1981.
"Optimal Auctions with Risk Averse Buyers,"
311, Massachusetts Institute of Technology (MIT), Department of Economics.
- Krishna, Vijay & Maenner, Eliot, 2001. "Convex Potentials with an Application to Mechanism Design," Econometrica, Econometric Society, vol. 69(4), pages 1113-19, July.
- Gale, Ian, 1990.
"A multiple-object auction with superadditive values,"
Elsevier, vol. 34(4), pages 323-328, December.
- Mark Armstrong, 2000. "Optimal Multi-Object Auctions," Review of Economic Studies, Oxford University Press, vol. 67(3), pages 455-481.
- Vijay Krishna & Motty Perry, 1997. "Efficient Mechanism Design," Game Theory and Information 9703010, EconWPA, revised 28 Apr 1998.
- Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation for Research in Economics, Yale University.
- Engelbrecht-Wiggans, Richard, 1988. "Revenue equivalence in multi-object auctions," Economics Letters, Elsevier, vol. 26(1), pages 15-19.
When requesting a correction, please mention this item's handle: RePEc:edj:ceauch:231. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.