Why a Simple Second-Price Auction Induces Efficient Endogenous Entry
- 106 Downloads
This article further studies ex ante efficient auctions in the setting of Stegeman (1996 Participation costs and efficient auctions, Journal of Economic Theory 71, 228–259.), where there exist entry costs for bidders who know their valuations. An alternative method is established to address efficient auctions. This method illustrates the intuition why the ex ante efficient allocation is Bayesian implementable through the Stegeman (1996) auction (a second-price auction with a reserve price equal to seller’s valuation and no entry fee). More importantly, our method leads to an alternative ex ante efficient auction that implements uniquely the efficient entry. Thus, this alternative auction solves the entry indeterminacy problem of the Stegeman (1996) auction, which generally induces inefficient entry equilibria besides the efficient ones.
KeywordsEfficient Auction Endogenous Entry Entry Costs
JEL ClassificationsD44 D82
Unable to display preview. Download preview PDF.
- Bergemann, D. and Välimäki, J. (2005), Information in Mechanism Design, Cowles Foundation Discussion Paper No. 1532.Google Scholar
- Levin D., Smith J.L. (1994), Equilibrium in auctions with entry. The American Economic Review 84, 585–599Google Scholar
- Lu, J. (2005), Efficient Auction with Private-Information Participation Cost, National University of Singapore, Working Paper.Google Scholar
- Lu, J. (2006), Auction Design with Opportunity Cost, National University of Singapore, Working paper.Google Scholar
- Matthews, S. (1984), Information acquisition in discriminatory auctions, in Boyer, M. and Kihlstrom, R. (eds.), Bayesian Models in Economic Theory, Elsevier Science Publishers B. V.Google Scholar
- Rezende, L. (2005), Mid-Auction Information Acquisition, Discussion Paper, University of Illinois.Google Scholar
- Ye, L. (2004), Optimal auctions with endogenous entry, Contributions to Theoretical Economics 4, article 8.Google Scholar