The Variable Value Environment: Auctions and Actions

Michael Schwarz () and Konstantin Sonin
Additional contact information
Michael Schwarz: University of California at Berkeley and NBER

No w0020, Working Papers from Center for Economic and Financial Research (CEFIR)

Abstract: We model an environment, where bidders’ private values may change over time as a result of both costly private actions and exogenous shocks. Examples of private actions include investment and entry decisions; shocks might be due to exogenous changes in a potential buyer’s circumstances. We describe an efficient auction mechanism that maximizes the final value of the object to the winning bidder net of the total cost of investment by all agents. In particular, we show that, assuming that the auctioneer does not have full commitment power, costly signalling is necessary for efficient entry when agents receive private information both before and after they make the entry decision. To rule out pooling equilibria that coexist with the efficient equilibrium in the basic mechanism, we introduce a virtual-implementation-style mechanism that (i) is almost efficient; (ii) forces players to coordinate on the separating equilibrium; and (iii) is simple enough to be potentially useful in practice.

Keywords: auctions; efficient mechanism design (search for similar items in EconPapers)
JEL-codes: D44 D80 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2001-01, Revised 2005-10
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: The Variable Value Environment: Auctions and Actions (2002)
Working Paper: The Variable Value Environment: Auctions and Actions (2001)
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