A Theory of Auctions with Endogenous Valuations

Alex Gershkov, Benny Moldovanu (), Philipp Strack and Mengxi Zhang

Journal of Political Economy, 2021, vol. 129, issue 4, 1011 - 1051

Abstract: We derive the symmetric, revenue-maximizing allocation of several units among agents who take costly actions that influence their values. The problem is equivalent to a reduced-form model where agents have nonexpected utility. The uniform-price auction and the discriminatory pay-your-bid auction with reserve prices that react to both demand and supply constitute symmetric, optimal mechanisms. We also identify a condition under which the overall optimal mechanism is indeed symmetric and illustrate the structure of the optimal asymmetric mechanism when the condition fails. The main tool in our analysis is an integral inequality based on Fan and Lorentz (1954).

Date: 2021
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Related works:
Working Paper: A Theory of Auctions With Endogenous Valuations (2018)
Working Paper: A Theory of Auctions with Endogenous Valuations (2018)
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