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Surplus Extraction and Competition

  • Michael Peters

A competitive economy is studied in which sellers offer alternative direct mechanisms to buyers who have correlated private information about their valuations. In contrast to the monopoly case where sellers charge entry fees and extract all buyers surplus, it is shown that in the \emph{unique} symmetric equilibrium with competition, sellers hold second price auctions with reserve prices set equal to their cost. Most important, it is a best reply for sellers not to charge entry fees of the kind normally used to extract surplus, even though it is feasible for them to do so.

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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number peters-97-02.

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Length: 29 pages
Date of creation: 11 Jul 1997
Date of revision:
Handle: RePEc:tor:tecipa:peters-97-02
Contact details of provider: Postal: 150 St. George Street, Toronto, Ontario
Phone: (416) 978-5283

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  1. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
  2. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum 37/1995, Oslo University, Department of Economics.
  3. Larry Epstein & Michael Peters, 1996. "A Revelation Principle For Competing Mechanisms," Working Papers peters-96-02, University of Toronto, Department of Economics.
  4. repec:oup:restud:v:59:y:1992:i:2:p:229-55 is not listed on IDEAS
  5. McAfee, R Preston & Reny, Philip J, 1992. "Correlated Information and Mechanism Design," Econometrica, Econometric Society, vol. 60(2), pages 395-421, March.
  6. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-57, November.
  7. Jeremy Bulow & Paul Klemperer, 1994. "Auctions vs. Negotiations," NBER Working Papers 4608, National Bureau of Economic Research, Inc.
  8. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-92, June.
  9. repec:oup:restud:v:64:y:1997:i:1:p:97-123 is not listed on IDEAS
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