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Auctions with costly information acquisition Constrained Bidders

Listed author(s):
  • Jacques Cremer
  • Yossi Spiegel
  • Charles Z. Zheng

We consider auction environments in which bidders must incur a cost to learn their valuations and study the optimal selling mechanisms in such environments. 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 buyers to both acquire and to reveal truthfully their valuations. 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 buyers’ 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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File URL: http://www.kellogg.northwestern.edu/research/math/papers/1420.pdf
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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1420.

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Date of creation: May 2004
Handle: RePEc:nwu:cmsems:1420
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Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014

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Web page: http://www.kellogg.northwestern.edu/research/math/
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  1. Cremer, J. & Khalil, F., 1991. "Gathering Information Before Signing a Contract," Working Papers 91-16, University of Washington, Department of Economics.
  2. Stegeman, Mark, 1996. "Participation Costs and Efficient Auctions," Journal of Economic Theory, Elsevier, vol. 71(1), pages 228-259, October.
  3. Ye Lixin, 2004. "Optimal Auctions with Endogenous Entry," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 4(1), pages 1-29, October.
  4. Cremer, J. & Khalil, F & Rochet, J.-C., 1996. "Strategic Information Gathering Before a Contract is Offered," Papers 976.425, Toulouse - GREMAQ.
  5. Dirk Bergemann & Martin Pesendorfer, 2001. "Information Structures in Optimal Auctions," Cowles Foundation Discussion Papers 1323, Cowles Foundation for Research in Economics, Yale University.
  6. M. L. Weitzman, 1978. "Optimal Search for the Best Alternative," Working papers 214, Massachusetts Institute of Technology (MIT), Department of Economics.
  7. Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Microeconomics 9903002, EconWPA.
  8. 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.
  9. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-599, June.
  10. Roger B. Myerson, 1984. "Multistage Games with Communication," Discussion Papers 590, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Dirk Bergemann & Juuso Valimaki, 2002. "Information Acquisition and Efficient Mechanism Design," Econometrica, Econometric Society, vol. 70(3), pages 1007-1033, May.
  12. repec:oxf:wpaper:1999-w12 is not listed on IDEAS
  13. 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.
  14. 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.
  15. Burguet, Roberto, 1996. "Optimal Repeated Purchases When Sellers Are Learning about Costs," Journal of Economic Theory, Elsevier, vol. 68(2), pages 440-455, February.
  16. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
  17. Nicola Persico, 1997. "Information Acquisition in Auctions," UCLA Economics Working Papers 762, UCLA Department of Economics.
  18. Chakraborty, Indranil & Kosmopoulou, Georgia, 2001. "Auctions with endogenous entry," Economics Letters, Elsevier, vol. 72(2), pages 195-200, August.
  19. Preston McAfee, R. & McMillan, John, 1988. "Search mechanisms," Journal of Economic Theory, Elsevier, vol. 44(1), pages 99-123, February.
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