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Auctions with Costly Information Acquisition

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

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.

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12709.

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Date of creation: 16 Jan 2007
Date of revision:
Publication status: Published in Economic Theory, January 2009, vol. 38 no. 1, pp. 41-72
Handle: RePEc:isu:genres:12709
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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  1. Crémer, Jacques & Khalil, Fahad & Rochet, Jean-Charles, 1996. "Strategic Information Gathering Before a Contract Is Offered," IDEI Working Papers 61, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Economics Series Working Papers 1999-W12, University of Oxford, Department of Economics.
  3. Chakraborty, Indranil & Kosmopoulou, Georgia, 2001. "Auctions with endogenous entry," Economics Letters, Elsevier, vol. 72(2), pages 195-200, August.
  4. Cremer, Jacques & Spiegel, Yossi & Zheng, Charles Zhoucheng, 2007. "Optimal search auctions," Journal of Economic Theory, Elsevier, vol. 134(1), pages 226-248, May.
  5. Cremer, J. & Khalil, F., 1991. "Gathering Information Before Signing a Contract," Working Papers 91-16, University of Washington, Department of Economics.
  6. Preston McAfee, R. & McMillan, John, 1988. "Search mechanisms," Journal of Economic Theory, Elsevier, vol. 44(1), pages 99-123, February.
  7. Stegeman, Mark, 1996. "Participation Costs and Efficient Auctions," Journal of Economic Theory, Elsevier, vol. 71(1), pages 228-259, October.
  8. Vishwanath, Tara, 1992. "Parallel Search for the Best Alternative," Economic Theory, Springer, vol. 2(4), pages 495-507, October.
  9. Crémer, Jacques & Spiegel, Yossi & Zheng, Charles Zhoucheng, 2006. "Optimal Search Auctions with Correlated Bidder Types," Staff General Research Papers 12663, Iowa State University, Department of Economics.
  10. Dirk Bergemann & Martin Pesendorfer, 2001. "Information Structures in Optimal Auctions," Cowles Foundation Discussion Papers 1323, Cowles Foundation for Research in Economics, Yale University.
  11. Ye Lixin, 2004. "Optimal Auctions with Endogenous Entry," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 4(1), pages 1-29, October.
  12. Khalil, F & Rochet, J-C, 1997. "Contracts and Productive Information Gathering," Working Papers 97-16, University of Washington, Department of Economics.
  13. M. L. Weitzman, 1978. "Optimal Search for the Best Alternative," Working papers 214, Massachusetts Institute of Technology (MIT), Department of Economics.
  14. Nicola Persico, 2000. "Information Acquisition in Auctions," Econometrica, Econometric Society, vol. 68(1), pages 135-148, January.
  15. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  16. Dirk Bergemann & Juuso Valimaki, 2002. "Information Acquisition and Efficient Mechanism Design," Econometrica, Econometric Society, vol. 70(3), pages 1007-1033, May.
  17. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
  18. Burguet, Roberto, 1996. "Optimal Repeated Purchases When Sellers Are Learning about Costs," Journal of Economic Theory, Elsevier, vol. 68(2), pages 440-455, February.
  19. Lewis, Tracy R & Sappington, David E M, 1997. "Information Management in Incentive Problems," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 796-821, August.
  20. Myerson, Roger B, 1986. "Multistage Games with Communication," Econometrica, Econometric Society, vol. 54(2), pages 323-58, March.
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