Journal ArticleDOI
Full extraction of the surplus in bayesian and dominant strategy auctions
Jacques Cremer,Richard P. McLean +1 more
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In this article, the authors consider auctions for a single indivisible object, in which the bidders have information about each other which is not available to the seller and show that the seller can use this information to his own benefit, and completely characterize the environ- ments in which a well chosen auction gives him the same expected payoff as that obtainable were he able to sell the object with full information about the bidder's willingness to pay.Abstract:
We consider auctions for a single indivisible object, in the case where the bidders have information about each other which is not available to the seller. We show that the seller can use this information to his own benefit, and we completely characterize the environ- ments in which a well chosen auction gives him the same expected payoff as that obtainable were he able to sell the object with full information about each bidder's willingness to pay. We provide this characterization for auctions in which the bidders have dominant strate- gies, and for those where the relevant equilibrium concept is Bayesian Nash. In both set-ups, the existence of these auctions hinges on the possibility of constructing lotteries with the correct properties. WE CONSIDER the situation in which an agent, the seller, possesses one indivisible unit of a good to which he attaches no value. But the good has value to a number of potential buyers, and its transfer to one of them would increase social welfare. In particular, the transfer to the buyer with the highest valuation maximizes social welfare. In this paper, we completely characterize environments in which the seller can design an auction that will enable him to capture for himself the full increase in social welfare induced by the transfer of the good to the bidder with the highest willingness to pay. If the seller had full information about the reservation prices of potential buyers, his optimal selling strategy would be very simple. He would announce a price equal or very close to the highest reservation value. The optimal strategy for the bidder with the highest evaluation would be to accept the offer. (Note that we are treating a situation in which the seller can commit himself to a price.) As a result of the exchange, the utility of the seller increases by the full amount of the increase in social welfare, and he has been able to fully extract the surplus. In many circumstances, however, a seller has only imperfect knowledge of the buyers' willingnesses to pay. In this case, he must find some mechanism, or auction, which will enable him to maximize his benefit from the sale of the object. The auction literature starts with this observation and shows how the seller can, by an astute choice of auction, extract the largest possible fraction of the surplus. In general, the literature has shown that this proportion is strictly less than one. In some circumstances, the bidders will have information about each other which is not available to the seller. For instance, in auctions for petroleum drilling rights, bidders know the results of geological tests which they haveread more
Citations
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The Theory of Incentive Mechanisms and the Samuelson Critique of a Contractarian Approach to Public-Good Provision
Felix Bierbrauer,Martin Hellwig +1 more
TL;DR: In this article, the authors use a mechanism design approach to clarify under which conditions this proposition is indeed correct, and the main result is that there is a large number of individuals and only mechanisms which are robust, in the sense that they do not exploit assumptions about individuals' probabilistic beliefs, are considered.
Essays on Auction Theory
TL;DR: In this article, the authors analyzed the optimal auction of multiple non-identical objects when buyers are risk averse and showed that the auction forms that yield the maximum revenue in the risk neutral case are no longer optimal.
Journal ArticleDOI
Optimal sales mechanism with outside options
TL;DR: In this paper, the optimal design of sales mechanisms when a buyer can quit a negotiation for an outside option at any time was studied, and the main results showed that the profit-maximizing mechanism induces a set of buyer types to delay purchasing a good if the value of the outside option is highly dispersed among buyer types.
Journal ArticleDOI
Optimal Monopoly Mechanisms with Demand Uncertainty
James Peck,Jeevant Rampal +1 more
TL;DR: It is shown that, under certain sufficient conditions, the firm’s optimal mechanism is to set the monopoly price in each demand state, and Segal's optimal ex post mechanism is robust to relaxing ex post incentive compatibility to interim incentive compatibility.
Journal ArticleDOI
Data-driven incentive alignment in capitation schemes
TL;DR: In this paper , the authors explore whether big data, taking the form of extensive high dimensional records, can reduce the cost of adverse selection by private insurers in government-run capitation schemes, such as Medicare Advantage.
References
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Optimal Auction Design
TL;DR: Optimal auctions are derived for a wide class of auction design problems when the seller has imperfect information about how much the buyers might be willing to pay for the object.
Journal ArticleDOI
Characterization of Satisfactory Mechanisms for the Revelation of Preferences for Public Goods
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Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist when Demands are Interdependent
Jacques Cremer,Richard P. McLean +1 more
TL;DR: In this article, the optimal design of resource allocation mechanisms in the presence of asymmetric information was studied and sufficient conditions were provided under which the seller can extract the full surplus from the buyers in an "ex post Nash" equilibrium.
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Groves' scheme on restricted domains
TL;DR: In this article, it was shown that Groves' scheme is unique on restricted domains which are convex, in particular convex domains, and this generalizes earlier uniqueness results by Green and Laffont and Walker.
Journal ArticleDOI
Optimal contracts with public ex post information
TL;DR: In this paper, the authors derive necessary and sufficient conditions for a public ex post signal (s ∈ S) that is correlated with the risk-neutral seller's costs to render the initial information asymmetry inconsequential to the buyer.