CFDP 2064

Author(s): 
CFDP Title: 

Optimal Auction Design in a Common Value Model


Publication Date: December, 2016

Pages: 34pp

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 Classifications:

C72, D44, D82, D83