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Auctions with Costly Information Acquisition

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  • Crémer, Jacques
  • Spiegel, Yossi
  • Zheng, Charles Zhoucheng

Abstract

We characterize optimal selling mechanisms in auction environments where bidders must incur a cost to learn their valuations. These mechanisms specify for each period, as a function of the bids in previous periods, which new potential buyers should be asked to bid. In addition, these mechanisms must induce the bidders to acquire information about their valuations and to reveal this information truthfully. Using a generalized Groves principle, we prove a very general full extraction of the surplus result: the seller can obtain the same profit as if he had full control over the bidders' acquisition of information and could have observed directly their valuations once they are informed. We also present appealing implementations of the optimal mechanism in special cases.

Suggested Citation

  • Crémer, Jacques & Spiegel, Yossi & Zheng, Charles Zhoucheng, 2007. "Auctions with Costly Information Acquisition," Staff General Research Papers Archive 12709, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:12709
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    References listed on IDEAS

    as
    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. Bergemann, Dirk & Pesendorfer, Martin, 2007. "Information structures in optimal auctions," Journal of Economic Theory, Elsevier, vol. 137(1), pages 580-609, November.
    3. Cremer, Jacques & Khalil, Fahad, 1992. "Gathering Information before Signing a Contract," American Economic Review, American Economic Association, vol. 82(3), pages 566-578, June.
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    5. Cremer, Jacques & Khalil, Fahad & Rochet, Jean-Charles, 1998. "Contracts and Productive Information Gathering," Games and Economic Behavior, Elsevier, vol. 25(2), pages 174-193, November.
    6. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
    7. Vishwanath, Tara, 1992. "Parallel Search for the Best Alternative," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 2(4), pages 495-507, October.
    8. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-286, July.
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    14. 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.
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    18. Stegeman, Mark, 1996. "Participation Costs and Efficient Auctions," Journal of Economic Theory, Elsevier, vol. 71(1), pages 228-259, October.
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    21. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-86, July.
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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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