Optimal Auctions with Information Acquisition

36 Pages Posted: 10 Nov 2007 Last revised: 3 Feb 2012

See all articles by Xianwen Shi

Xianwen Shi

University of Toronto - Department of Economics

Date Written: May 9, 2011


This paper studies optimal auction design in a private value setting with endogenous information gathering. We develop a general framework for modeling information acquisition when a seller wants to sell an object to one of several potential buyers, who can each gather information about their valuations prior to participation in the auction. We first demonstrate that the optimal monopoly price is always lower than the standard monopoly price. We then show that standard auctions with a reserve price remain optimal among symmetric mechanisms, but the optimal reserve price lies between the ex ante mean valuation of bidders and the standard reserve price in Myerson (1981). Finally, we show that the optimal asymmetric mechanism softens the price discrimination against "strong" bidders.

Keywords: optimal auctions, information acquisition, informational efficiency, rotation order, first-order approach

JEL Classification: C70, D44, D82, D86

Suggested Citation

Shi, Xianwen, Optimal Auctions with Information Acquisition (May 9, 2011). Available at SSRN: https://ssrn.com/abstract=1028859 or http://dx.doi.org/10.2139/ssrn.1028859

Xianwen Shi (Contact Author)

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S3G7