An implementation of the general optimal mechanism in Esö and Szentes (2007)

Dongri Liu and Jingfeng Lu

Games and Economic Behavior, 2025, vol. 151, issue C, 82-94

Abstract: In this paper, we provide an implementation of the optimal mechanism of Esö and Szentes (2007) for their general environment without assuming constant marginal utility (in the first-stage type) for the buyers. Our implementation is carried out through a three-stage handicap auction. In stage 1, each buyer, knowing his first-stage type, is required to select a handicap menu by paying a menu fee. A higher menu fee would lead to a more favorable handicap menu, which charges a lower handicap fee for every possible handicap level. In stage 2, each buyer, informed of his second-stage signal, is required to select a handicap by paying a handicap fee specified by his early chosen handicap menu. In stage 3, all buyers compete for the object via a second-price auction with handicaps. The highest bidder wins and pays the sum of his chosen handicap and the second-highest bid.

Keywords: Auction design; Dynamic mechanism design; Implementation (search for similar items in EconPapers)
JEL-codes: D44 D82 D86 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:151:y:2025:i:c:p:82-94

DOI: 10.1016/j.geb.2025.02.014

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