Optimal Auction Design in a Common Value Model

35 Pages Posted: 19 Dec 2016

See all articles by Dirk Bergemann

Dirk Bergemann

Yale University - Cowles Foundation - Department of Economics; Yale University - Cowles Foundation

Benjamin A. Brooks

Princeton University - Department of Economics

Stephen Morris

Princeton University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 16, 2016

Abstract

We study auction design when bidders have a pure common value equal to the maximum of their independent signals. In the revenue maximizing mechanism, each bidder makes a payment that is independent of his signal and the allocation discriminates in favor of bidders with lower signals. We provide a necessary and sufficient condition under which the optimal mechanism reduces to a posted price under which all bidders are equally likely to get the good. This model of pure common values can equivalently be interpreted as model of resale: the bidders have independent private values at the auction stage, and the winner of the auction can make a take-it-or-leave-it-offer in the secondary market under complete information.

Keywords: Optimal auction, common values, revenue maximization, revenue equivalence, rst-price auction, second-price auction, resale, posted price, maximum value game, wallet game, descending auction, local incentive constraints, global incentive constraints

JEL Classification: C72, D44, D82, D83

Suggested Citation

Bergemann, Dirk and Brooks, Benjamin A. and Morris, Stephen Edward, Optimal Auction Design in a Common Value Model (December 16, 2016). Cowles Foundation Discussion Paper No. 2064. Available at SSRN: https://ssrn.com/abstract=2886453 or http://dx.doi.org/10.2139/ssrn.2886453

Dirk Bergemann (Contact Author)

Yale University - Cowles Foundation - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
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203-432-3592 (Phone)
203-432-2128 (Fax)

HOME PAGE: http://www.econ.yale.edu/~dirk/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Benjamin A. Brooks

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Stephen Edward Morris

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

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