Countering the winner's curse: Optimal auction design in a common value model
Name
3797-29107-1-PB.pdf
Description
Published version
Size
353.44 KB
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Unknown
Checksum (MD5)
9a2a4df33c1114d9895d3230f34b6fd9
Author(s)
Bergemann, Dirk
Brooks, Benjamin
Morris, Stephen
Date Issued
2020
Journal
Theoretical Economics
Publisher
The Econometric Society
Version
Final published version
Abstract
We characterize revenue maximizing mechanisms in a common value environment where the value of the object is equal to the highest of the bidders' independent signals. If the revenue maximizing solution is to sell the object with probability 1, then an optimal mechanism is simply a posted price, namely, the highest price such that every type of every bidder is willing to buy the object. If the object is optimally sold with probability less than 1, then optimal mechanisms skew the allocation toward bidders with lower signals. The resulting allocation induces a “winner's blessing,” whereby the expected value conditional on winning is higher than the unconditional expectation. By contrast, standard auctions that allocate to the bidder with the highest signal (e.g., the first-price, second-price, or English auctions) deliver lower revenue because of the winner's curse generated by the allocation. Our qualitative results extend to more general common value environments with a strong winner's curse.
MIT Department
Massachusetts Institute of Technology. Department of Economics
Terms of Use
Creative Commons Attribution NonCommercial License 4.0
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.3982/TE3797
