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Membership Mechanisms

Seung Han Yoo

No 1804, Discussion Paper Series from Institute of Economic Research, Korea University

Abstract: This paper studies an environment in which a seller seeks to sell two different items to buyers. The seller designs a membership mechanism that assigns positive allocations to members only. A membership mechanism specifies a member set and a membership fee as well as allocation and payment rules for the two goods. Among such mechanisms with bundling participation, we first establish the revenue-maximizing allocation rule given a regularity condition for a modified valuation distribution that reflects the set, which resolves the existence problem of a member set and results in a simple optimal payment rule. The optimal allocation rule enables us to compare between membership and separate participation, suggesting conditions under which membership dominates separate participation: interplay between the number of bidders and the degree of the stochastic dominance of valuation distributions. This allocation also provides a rationale for secret reserve prices, a long-standing puzzle in theory.

Keywords: mechanism design; membership; multidimensional types; auction; secret reserve prices (search for similar items in EconPapers)
JEL-codes: D44 D82 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-des, nep-gth and nep-mic
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Handle: RePEc:iek:wpaper:1804