Approximately Optimal Auctions With a Strong Bidder

Luca Anderlini and GaOn Kim

Working Papers from Georgetown University, Department of Economics

Abstract: We consider auctions with N+1 bidders. Of these, N are symmetric and N+1 is "sufficiently strong'' relative to the others. The auction is a "tournament'' in which the first N players bid to win the right to compete with N+1. The bids of the first N players are binding and the highest bidder proceeds to a second-price competition with N+1. When N+1's values converge in distribution to an atom above the upper end of the distribution of the N bidders and the rest of the distribution is drained away from low values sufficiently slowly, the auction's expected revenue is arbitrarily close to the one obtained in a Myerson (1981) optimal auction. The tournament design is "detail free'' in the sense that no specific knowledge of the distributions is needed in addition to the fact that bidder N+1 is stronger than the others as required. In particular, no additional information about the value of the atom is needed. This is important since mis-calibrating by a small amount an attempt to implement the optimal auction can lead to large losses in revenue. We provide an interpretation of these results as possibly providing guidelines to a seller on how to strategically "populate'' auctions with a single bidder even when only weaker bidders are available.

Keywords: Strong Insider; Tournament Auction; Approximate Optimality (search for similar items in EconPapers)
JEL-codes: C70 C72 C79 (search for similar items in EconPapers)
Pages: 33
Date: 2024-09-17
New Economics Papers: this item is included in nep-des, nep-gth and nep-mic
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Working Paper: Approximately Optimal Auctions With a Strong Bidder (2024)
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