Auction design with endogenously correlated buyer types

Daniel Krähmer

Journal of Economic Theory, 2012, vol. 147, issue 1, 118-141

Abstract: This paper studies optimal auction design when the seller can affect the buyersʼ valuations through an unobservable ex ante investment. The key insight is that the optimal mechanism may have the seller play a mixed investment strategy so as to create correlation between the buyersʼ otherwise (conditionally) independent valuations. Assuming that the seller announces the mechanism before investing, the paper establishes conditions on the investment technology so that a mechanism exists which leaves buyers no information rent and leaves the seller indifferent between his investments. Under these conditions, the seller can, in fact, extract the first best surplus almost fully.

Keywords: Auction; Ex ante investment; Full surplus extraction; Correlation; Mechanism design (search for similar items in EconPapers)
JEL-codes: C72 D42 D44 D82 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:147:y:2012:i:1:p:118-141

DOI: 10.1016/j.jet.2011.11.015

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