Revenue-Capped Efficient Auctions

Nozomu Muto, Yasuhiro Shirata and Takuro Yamashita

Journal of the European Economic Association, 2020, vol. 18, issue 3, 1284-1320

Abstract: We study an auction that maximizes the expected social surplus under an upper-bound constraint on the seller’s expected revenue, which we call a revenue cap. Such a constrained-efficient auction may arise, for example, when (i) the auction designer is “pro-buyer”, that is, he maximizes the weighted sum of the buyers’ and seller’s auction payoffs, where the weight for the buyers is greater than that for the seller; (ii) the auction designer maximizes the (unweighted) total surplus in a multiunit auction in which the number of units the seller owns is private information; or (iii) multiple sellers compete to attract buyers before the auction. We characterize the mechanisms for constrained-efficient auctions and identify their important properties. First, the seller sets no reserve price and sells the good for sure. Second, with a nontrivial revenue cap, “bunching” is necessary. Finally, with a sufficiently severe revenue cap, the constrained-efficient auction has a bid cap, so that bunching occurs at least “at the top,” that is, “no distortion at the top” fails.

Date: 2020
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Related works:
Working Paper: Revenue-capped efficient auctions (2020)
Working Paper: Revenue-capped efficient auctions (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:jeurec:v:18:y:2020:i:3:p:1284-1320.

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