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Optimal nondiscriminatory auctions with favoritism

Leandro Arozamena (), Nicholas Shunda () and Federico Weinschelbaum ()

Department of Economics Working Papers from Universidad Torcuato Di Tella

Abstract: In many auction settings, there is favoritism: the seller's welfare depends positively on the utility of a subset of potential bidders. However, laws or regulations may not allow the seller to discriminate among bidders. We find the optimal nondiscriminatory auction in a private value, single-unit model under favoritism. At the optimal auction there is a reserve price, or an entry fee, which is decreasing in the proportion of preferred bidders and in the intensity of the preference. Otherwise, the highest-valuation bidder wins. We show that, at least under some conditions, imposing a no-discrimination constraint raises expected seller revenue.

Keywords: auctions; favoritism; nondiscriminatory mechanisms (search for similar items in EconPapers)
JEL-codes: C72 D44 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2012-03
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Journal Article: Optimal nondiscriminatory auctions with favoritism (2014) Downloads
Working Paper: Optimal nondiscriminatory auctions with favoritism (2012) Downloads
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