Optimal Auction Design in a Common Value Model

Dirk Bergemann, Benjamin Brooks and Stephen Morris

No 2064, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We study auction design when bidders have a pure common value equal to the maximum of their independent signals. In the revenue maximizing mechanism, each bidder makes a payment that is independent of his signal and the allocation discriminates in favor of bidders with lower signals. We provide a necessary and sufficient condition under which the optimal mechanism reduces to a posted price under which all bidders are equally likely to get the good. This model of pure common values can equivalently be interpreted as model of resale: the bidders have independent private values at the auction stage, and the winner of the auction can make a take-it-or-leave-it-offer in the secondary market under complete information.

Keywords: Optimal auction; common values; revenue maximization; revenue equivalence; rst-price auction; second-price auction; resale; posted price; maximum value game; wallet game; descending auction; local incentive constraints; global incentive constraints (search for similar items in EconPapers)
JEL-codes: C72 D44 D82 D83 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2016-12
New Economics Papers: this item is included in nep-gth and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Optimal Auction Design in a Common Value Model (2017)
Working Paper: Optimal Auction Design in a Common Value Model (2016)
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