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Discussion Paper

Countering the Winner’s Curse: Optimal Auction Design in a Common Value Model

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.