Selling to Intermediaries: Optimal Auction Design in a Common Value Model

Dirk Bergemann, Benjamin Brooks and Stephen Morris

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

Abstract: We characterize revenue maximizing auctions when the bidders are intermediaries who wish to resell the good. The bidders have differential information about their common resale opportunities: each bidder privately observes an independent draw of a resale opportunity, and the highest signal is a sufficient statistic for the value of winning the good. If the good must be sold, then the optimal mechanism is simply a posted price at which all bidders are willing to purchase the good, and all bidders are equally likely to be allocated the good, irrespective of their signals. If the seller can keep the good, then under the optimal mechanism, all bidders make the same expected payment and have the same expected probability of receiving the good, independent of the signal. Conditional on the good being sold, the allocation discriminates in favor of bidders with lower signals. In some cases, the optimal mechanism again reduces to a posted price. The model provides a foundation for posted prices in multi-agent screening problems.

Keywords: Optimal auction; Intermediaries; Posted price; Guaranteed demand auction; Common values; Revenue maximization; Revenue equivalence; First-price auction; Second-price auction; Resale; Maximum value 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: 37 pages
Date: 2016-12, Revised 2017-07
New Economics Papers: this item is included in nep-des, nep-gth and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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