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.
(This abstract was borrowed from another version of this item.)
|Date of creation:||2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/
More information through EDIRC
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.:
- Paul Klemperer, 2004.
"Auctions: Theory and Practice,"
Online economics textbooks,
SUNY-Oswego, Department of Economics, number auction1, December.
- 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.
- 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.
- Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation for Research in Economics, Yale University.
- Riley, John G & Samuelson, William F, 1981.
American Economic Review,
American Economic Association, vol. 71(3), pages 381-92, June.
- 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.
- 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, 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.
- Vijay Krishna & Motty Perry, 1997. "Efficient Mechanism Design," Game Theory and Information 9703010, EconWPA, revised 28 Apr 1998.
- Armstrong, Mark, 2000. "Optimal Multi-object Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 455-81, July.
- Krishna, Vijay & Maenner, Eliot, 2001. "Convex Potentials with an Application to Mechanism Design," Econometrica, Econometric Society, vol. 69(4), pages 1113-19, July.
- 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.
- Fernando Branco, 1996. "Multiple unit auctions of an indivisible good," Economic Theory, Springer, vol. 8(1), pages 77-101.
- repec:att:wimass:9008 is not listed on IDEAS
- 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.
- Gale, Ian, 1990.
"A multiple-object auction with superadditive values,"
Elsevier, vol. 34(4), pages 323-328, December.
- Philippe Jehiel & Benny Moldovanu, 2001.
"A note of revenue maximization and efficiency in multi-object auctions,"
AccessEcon, vol. 3(2), pages 1-5.
- 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.
- Maskin, Eric S & Riley, John G, 1984.
"Optimal Auctions with Risk Averse Buyers,"
Econometric Society, vol. 52(6), pages 1473-1518, November.
- Engelbrecht-Wiggans, Richard, 1988. "Revenue equivalence in multi-object auctions," Economics Letters, Elsevier, vol. 26(1), pages 15-19.
- Avery, Christopher & Hendershott, Terrence, 2000. "Bundling and Optimal Auctions of Multiple Products," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 483-97, July.
When requesting a correction, please mention this item's handle: RePEc:ste:nystbu:08-12. 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: (Viveca Licata)
If references are entirely missing, you can add them using this form.