Countering the winner's curse: Optimal auction design in a common value model

Artikel

We characterize revenue maximizing mechanisms in a common value environment where the value of the object is equal to the highest of bidders’ independent signals. If the object is optimally sold with probability one, then the optimal mechanism is simply a posted price, with the highest price such that every type of every bidder is willing to buy the object. A sufficient condition for the posted price to be optimal among all mechanisms is that there is at least one potential bidder who is omitted from the auction. If the object is optimally sold with probability less than one, then optimal mechanisms skew the allocation towards bidders with lower signals. This can be implemented via a modified Vickrey auction, where there is a random reserve price for just the high bidder. The resulting allocation induces a “winner's blessing,” whereby the expected value conditional on winning is higher than the unconditional expectation. By contrast, standard auctions that allocate to the bidder with the highest signal (e.g., the first-price, second-price or English auctions) deliver lower revenue because of the winner's curse generated by the allocation rule. Our qualitative results extend to more general common value environments where the winner's curse is large.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Theoretical Economics ; ISSN: 1555-7561 ; Volume: 15 ; Year: 2020 ; Issue: 4 ; Pages: 1399-1434 ; New Haven, CT: The Econometric Society

Classification and Topics

• Classification: Wirtschaft ; Noncooperative Games ; Auctions ; Asymmetric and Private Information; Mechanism Design ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
• Subject: Optimal auction ; common values ; maximum game ; posted price ; reserve price ; revenue equivalence

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bergemann, Dirk ; Brooks, Ben ; Morris, Stephen
• Event: Veröffentlichung
• (who): The Econometric Society
• (where): New Haven, CT
• (when): 2020

Further information

• DOI: doi:10.3982/TE3797
• Handle: http://hdl.handle.net/10419/253492
• Last update: 10.03.2025, 11:42 AM CET