Surplus Extraction and Competition

Michael Peters ()

Working Papers from University of Toronto, Department of Economics

Abstract: 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.

JEL-codes: D44 D82 D83 (search for similar items in EconPapers)
Pages: 29 pages
Date: 1997-07-11
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Persistent link: https://EconPapers.repec.org/RePEc:tor:tecipa:peters-97-02

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