A Very Robust Auction Mechanism

24 Pages Posted: 17 Jan 2018

See all articles by Richard P. McLean

Richard P. McLean

Rutgers University - Department of Economics

Andrew Postlewaite

University of Pennsylvania - Department of Economics

Date Written: January 16, 2018

Abstract

A single unit of a good is to be sold by auction to one of many potential buyers. There are two equally likely states of the world. Potential buyers receive noisy signals of the state of the world. The accuracies of buyers signals may differ. A buyers valuation is the sum of a common value component that depends on the state and an idiosyncratic private value component independent of the state. The seller knows nothing about the accuracies of the signals or about buyers' beliefs about the accuracies. It is common knowledge among buyers that the accuracies of the signals are conditionally independent and uniformly bounded below 1 and above 1=2, and nothing more. We demonstrate a modified second price auction that has the property that, for any ε > 0; the sellers expected revenue will be within ε of the highest buyer expected value when the number of buyers is sufficiently large and buyers make undominated bids.

Keywords: Robustness, Optimal auctions, Incentive Compatibility

JEL Classification: C70, D44, D60, D82

Suggested Citation

McLean, Richard P. and Postlewaite, Andrew, A Very Robust Auction Mechanism (January 16, 2018). PIER Working Paper No. 18-001, Available at SSRN: https://ssrn.com/abstract=3103073 or http://dx.doi.org/10.2139/ssrn.3103073

Richard P. McLean

Rutgers University - Department of Economics ( email )

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Andrew Postlewaite (Contact Author)

University of Pennsylvania - Department of Economics ( email )

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HOME PAGE: http://www.econ.upenn.edu/~apostlew

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