Auction Platform Design and the Linkage Principle
29 Pages Posted: 21 Dec 2012 Last revised: 22 Jan 2015
Date Written: January 22, 2015
This paper examines an auction platform in which the monopoly platform maximizes profits by adjusting participation fees and choosing an auction format. The seller has private information on the quality of the good, and each participating buyer receives a private signal about his valuation of the good. The choice of auction format determines the allocation of trading surplus between the seller and buyers. This paper shows that when the seller's type is affiliated with the buyers' signals, the platform can charge higher participation fees on both sides by choosing a first-price or descending auction rather than a second-price or ascending auction. It also examines the effect of allowing participating buyers to acquire information on the seller's type and shows that the platform can charge higher participation fees on both sides by restricting communication between the seller and buyers.
Keywords: multi-sided platforms, auctions, market transparency, market design
JEL Classification: L21, D44, D82, D83
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