Optimal nondiscriminatory auctions with favoritism
Leandro Arozamena (),
Nicholas Shunda () and
Federico Weinschelbaum ()
Department of Economics Working Papers from Universidad Torcuato Di Tella
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
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Journal Article: Optimal nondiscriminatory auctions with favoritism (2014)
Working Paper: Optimal nondiscriminatory auctions with favoritism (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:udt:wpecon:2012-03
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