Article ID Journal Published Year Pages File Type
957178 Journal of Economic Theory 2012 24 Pages PDF
Abstract
This paper studies optimal auction design when the seller can affect the buyersʼ valuations through an unobservable ex ante investment. The key insight is that the optimal mechanism may have the seller play a mixed investment strategy so as to create correlation between the buyersʼ otherwise (conditionally) independent valuations. Assuming that the seller announces the mechanism before investing, the paper establishes conditions on the investment technology so that a mechanism exists which leaves buyers no information rent and leaves the seller indifferent between his investments. Under these conditions, the seller can, in fact, extract the first best surplus almost fully.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
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