Working Paper: CEPR ID: DP5747
Authors: Patrick W. Schmitz
Abstract: Consider a revenue-maximizing seller who can sell an object to one of n potential buyers. Each buyer either has hard information about his valuation (i.e., evidence that cannot be forged) or is ignorant. The optimal mechanism is characterized. It turns out that more ignorance can increase the expected total surplus. Even when the buyers are ex ante symmetric, the object may be sold to a buyer who does not have the largest willingness-to-pay. Nevertheless, an additional buyer increases the expected total surplus in the symmetric case, whereas more competition can be harmful if there are ex ante asymmetries.
Keywords: hard information; mechanism design
JEL Codes: D42; D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| type of buyer information (ignorance) (D83) | expected total surplus (D46) |
| adding an additional buyer (D16) | expected total surplus (D46) |
| increased competition (more buyers) (D41) | expected total surplus (D46) |