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"Upping the ante": how to design efficient auctions with entry?

Author

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  • Laurent Lamy

    (PSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)

Abstract

Of primary importance in auction design is the set of strategies available to the seller at the auction stage. We first formalize hold-up regarding entry costs that preys on second-price auctions when the seller may engage in a costly shill-bidding activity. We derive the optimal reserve and show how shill bidding can make posted prices outperforming auctions. Second, we advocate for a new regulation where shills would be banned but with the possibility of canceling sales ex post, which offers some valuable flexibility: the English auction with jump bids implements, then, the first best in general environments.

Suggested Citation

  • Laurent Lamy, 2013. ""Upping the ante": how to design efficient auctions with entry?," PSE - Labex "OSE-Ouvrir la Science Economique" halshs-00840844, HAL.
  • Handle: RePEc:hal:pseose:halshs-00840844
    DOI: 10.1111/1756-2171.12017
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00840844
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    References listed on IDEAS

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    1. Cremer, Jacques & Spiegel, Yossi & Zheng, Charles Zhoucheng, 2007. "Optimal search auctions," Journal of Economic Theory, Elsevier, vol. 134(1), pages 226-248, May.
    2. Lamy, Laurent, 2009. "The Shill Bidding Effect versus the Linkage Principle," Journal of Economic Theory, Elsevier, vol. 144(1), pages 390-413, January.
    3. Patrick Bajari & Ali Hortaçsu, 2004. "Economic Insights from Internet Auctions," Journal of Economic Literature, American Economic Association, vol. 42(2), pages 457-486, June.
    4. Porter, Robert H & Zona, J Douglas, 1993. "Detection of Bid Rigging in Procurement Auctions," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 518-538, June.
    5. Lopomo, Giuseppe, 2001. "Optimality and Robustness of the English Auction," Games and Economic Behavior, Elsevier, vol. 36(2), pages 219-240, August.
    6. Johannes Hörner & Nicolas Sahuguet, 2007. "Costly Signalling in Auctions -super-1," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 173-206.
    7. Ruqu Wang & Emin Murat Dinlersoz & Parimal Kanti Bag, 2000. "More on phantom bidding," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 15(3), pages 701-707.
    8. Leandro Arozamena & Estelle Cantillon, 2004. "Investment Incentives in Procurement Auctions," Review of Economic Studies, Oxford University Press, vol. 71(1), pages 1-18.
    9. Horstmann, Ignatius J & LaCasse, Chantale, 1997. "Secret Reserve Prices in a Bidding Model with a Resale Option," American Economic Review, American Economic Association, vol. 87(4), pages 663-684, September.
    10. Levin, Dan & Smith, James L, 1996. "Optimal Reservation Prices in Auctions," Economic Journal, Royal Economic Society, vol. 106(438), pages 1271-1283, September.
    11. Orley Ashenfelter & Kathryn Graddy, 2003. "Auctions and the Price of Art," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 763-787, September.
    12. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-599, June.
    13. McAfee, R Preston & Reny, Philip J, 1992. "Correlated Information and Mechanism Design," Econometrica, Econometric Society, vol. 60(2), pages 395-421, March.
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    Cited by:

    1. Philippe Jehiel & Laurent Lamy, 2018. "A Mechanism Design Approach to the Tiebout Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 126(2), pages 735-760.
    2. Lamy, Laurent, 2012. "The econometrics of auctions with asymmetric anonymous bidders," Journal of Econometrics, Elsevier, vol. 167(1), pages 113-132.
    3. Laurent Lamy & Philippe Jehiel, 2016. "On the benefits of set-asides," Post-Print hal-01688237, HAL.
    4. Philippe Jehiel & Laurent Lamy, 2015. "On absolute auctions and secret reserve prices," RAND Journal of Economics, RAND Corporation, vol. 46(2), pages 241-270, June.
    5. Jehiel, Philippe & Lamy, Laurent, 2014. "On discrimination in procurement auctions," CEPR Discussion Papers 9790, C.E.P.R. Discussion Papers.
    6. Philippe Jehiel & Laurent Lamy, 2011. "Absolute auctions and secret reserve prices: Why are they used?," Levine's Working Paper Archive 786969000000000316, David K. Levine.
    7. Lamy, Laurent, 2012. "The econometrics of auctions with asymmetric anonymous bidders," Journal of Econometrics, Elsevier, vol. 167(1), pages 113-132.

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    Keywords

    Auction Design;

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