Optimal Selling Strategies When Buyers May Have Hard Information

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 has not the largest willingness-to-pay. Nevertheless, an additional buyer increases the expected total surplus in the case of ex ante symmetry, whereas more competition can be harmful if there are asymmetries.