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Optimal Auction Design Under Non-Commitment

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  • Vasiliki Skreta

Abstract

We characterize revenue-maximizing mechanisms in Myerson's (1981) environment when the seller behaves sequentially rationally, in the sense that she cannot commit not to propose a new mechanism if the previously chosen one fails to allocate the object. We show that the seller-optimal mechanism takes the same form as in the case when there is commitment: The seller maximizes revenue by assigning, at t=1, the good to the buyer with the highest virtual valuation if it is above a buyer-specific reserve price. If no trade takes place at t=1, at t=2, the seller assigns the object to the buyer with the highest posterior virtual valuation, provided that it is above the seller's value.
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Suggested Citation

  • Vasiliki Skreta, 2013. "Optimal Auction Design Under Non-Commitment," Working Papers 13-08, New York University, Leonard N. Stern School of Business, Department of Economics.
  • Handle: RePEc:ste:nystbu:13-08
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    References listed on IDEAS

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    Cited by:

    1. Johannes Hörner & Larry Samuelson, 2011. "Managing Strategic Buyers," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 379-425.
    2. Chia-Hui Chen & Junichiro Ishida, 2013. "Auctions Versus Negotiations: The Role of Price Discrimination," ISER Discussion Paper 0873, Institute of Social and Economic Research, Osaka University.
    3. Hannu Vartiainen, 2013. "Auction Design Without Commitment," Journal of the European Economic Association, European Economic Association, vol. 11(2), pages 316-342, April.
    4. Bergemann, Dirk & Pavan, Alessandro, 2015. "Introduction to Symposium on Dynamic Contracts and Mechanism Design," Journal of Economic Theory, Elsevier, vol. 159(PB), pages 679-701.
    5. Onur A. Koska & Ilke Onur & Frank Stähler, 2015. "The Scope of Auctions in the Presence of Downstream Interactions and Information Externalities," CESifo Working Paper Series 5256, CESifo Group Munich.
    6. Robert Zeithammer, 2009. "Commitment in sequential auctioning: advance listings and threshold prices," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(1), pages 187-216, January.
    7. Dino Gerardi & Lucas Maestri, 2015. "Dynamic Contracting with Limited Commitment and the Ratchet Effect," Carlo Alberto Notebooks 401, Collegio Carlo Alberto.
    8. Todd R. Kaplan & Shmuel Zamir, 2014. "Advances in Auctions," Discussion Papers 1405, Exeter University, Department of Economics.
    9. Lu Ji & Tong Li, 2008. "Multi-round procurement auctions with secret reserve prices: theory and evidence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(7), pages 897-923.
    10. Lamping, Jennifer, 2008. "The Value of Commitment in Auctions with Matching," MPRA Paper 24373, University Library of Munich, Germany.
    11. repec:eee:jetheo:v:171:y:2017:i:c:p:136-173 is not listed on IDEAS
    12. Jenny Simon, 2011. "Financial Markets as a Commitment Device for the Government," 2011 Meeting Papers 447, Society for Economic Dynamics.
    13. Artyom Shneyerov, 2014. "An optimal slow Dutch auction," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(3), pages 577-602, November.
    14. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications, Elsevier.
    15. Vasiliki Skreta, 2005. "Revenue Equivalence for Arbitrary Type Spaces," UCLA Economics Online Papers 347, UCLA Department of Economics.
    16. Jenny Simon, 2014. "Imperfect Financial Markets as a Commitment Device for the Government," CESifo Working Paper Series 4902, CESifo Group Munich.
    17. repec:spr:jogath:v:47:y:2018:i:1:d:10.1007_s00182-017-0587-5 is not listed on IDEAS
    18. Philip M. Fernbach & Steven A. Sloman & Robert St. Louis & Julia N. Shube, 2013. "Explanation Fiends and Foes: How Mechanistic Detail Determines Understanding and Preference," Journal of Consumer Research, Oxford University Press, vol. 39(5), pages 1115-1131.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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