Optimal Auction Design in a Common Value Model

37 Pages Posted: 17 Jan 2017

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

MIT

Multiple version iconThere are 2 versions of this paper

Date Written: January 2017

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

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 (January 2017). CEPR Discussion Paper No. DP11783, Available at SSRN: https://ssrn.com/abstract=2900200

Dirk Bergemann (Contact Author)

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

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
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

MIT ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

HOME PAGE: http://https://economics.mit.edu/faculty/semorris

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
1
Abstract Views
488
PlumX Metrics