Buyers’ welfare maximizing auction design

Sebastián D. Bauer ()
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Sebastián D. Bauer: Stanford University Graduate School of Business

International Journal of Game Theory, 2023, vol. 52, issue 2, No 9, 555-567

Abstract: Abstract I derive the incentive compatible and individually rational mechanism that maximizes the sum of the buyers’ ex-ante expected utilities. I also show that this mechanism minimizes the seller’s revenue. When payments are required to be non-negative, my mechanism takes the form of an arbitrarily weighted lottery with no participation fees, and the resulting allocation is generally not ex-post efficient. This means that before learning their valuations and if side payments from the seller to the buyers are not allowed, buyers as a group would be better off if they gave up ex-post efficiency in order to avoid positive payments. When transfers are allowed, the optimal mechanism is a standard auction with no reserve price and where the seller’s income is redistributed back to the buyers. This mechanism is robust to speculators if a buyer with value 0 never partakes in the redistribution.

Keywords: Auction design; Buyers’ ex-ante efficiency; Buyers’ welfare; Non-negative payments; Buyer participation (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s00182-022-00829-w

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