Working Paper: CEPR ID: DP11783
Authors: Dirk Bergemann; Benjamin A. Brooks; Stephen Morris
Abstract: We study auction design when bidders have a pure common value equal to the maximum of their independent signals. In the revenue maximizing mechanism, each bidder makes a payment that is independent of his signal and the allocation discriminates in favor of bidders with lower signals. We provide a necessary and sufficient condition under which the optimal mechanism reduces to a posted price under which all bidders are equally likely to get the good. This model of pure common values can equivalently be interpreted as model of resale: the bidders have independent private values at the auction stage, and the winner of the auction can make a take-it-or-leave-it-offer in the secondary market under complete information.
Keywords: optimal auction; common values; revenue maximization; resale; posted price; maximum value game; wallet game; descending auction; local incentive constraints; global incentive constraints
JEL Codes: C72; D44; D82; D83
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| constant signal-independent participation fee (G19) | revenue generated (H27) |
| constant probability of receiving the good (D80) | revenue generated (H27) |
| distribution of values (C46) | revenue outcome (H27) |
| lower signals (C24) | discriminatory allocation favoring bidders with lower signals (D44) |
| distribution of bidders' signals (D44) | resulting revenue (H27) |
| reported types (C46) | allocation of the good (D61) |
| local and global incentive constraints (D10) | optimal auction design (D44) |
| constant participation fees and interim winning probabilities (G19) | maximum revenue (D41) |