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Optimal search auctions

Author

Listed:
  • Charles Zhoucheng Zheng
  • Jacques Cremer
  • Yossef Spiegel
Abstract
We study the design of profit maximizing single unit auctions under the assumption that the seller needs to incur costs to contact prospective bidders and inform them about the auction. When bidders' types are independent (with^Mpossibly bidder-specific distributions) and their valuations are possibly interdependent, the seller's problem can be reduced to a (stochastic, history-contingent) search problem in which the surplus is measured in terms of virtual utilities minus search costs. Compared to the socially efficient mechanism, the optimal mechanism features fewer participants, longer search conditional on the same set of participants, and inefficient sequence of entry. When bidders' types are correlated, the seller cannot fully extract the social surplus for sure but can extract it with an arbitrarily high probability.

Suggested Citation

  • Charles Zhoucheng Zheng & Jacques Cremer & Yossef Spiegel, 2004. "Optimal search auctions," Econometric Society 2004 North American Summer Meetings 615, Econometric Society.
    • Handle: RePEc:ecm:nasm04:615
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Zhang, Hanzhe, 2021. "The optimal sequence of prices and auctions," European Economic Review, Elsevier, vol. 133(C).
    2. Polanski Arnold & Cardona Daniel, 2012. "Multilevel Mediation in Symmetric Trees," Review of Network Economics, De Gruyter, vol. 11(3), pages 1-23, September.
    3. Jacques Crémer & Yossi Spiegel & Charles Zheng, 2009. "Auctions with costly information acquisition," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 38(1), pages 41-72, January.
    4. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications,, Elsevier.
    5. Gal, Shmuel & Landsberger, Michael & Nemirovski, Arkadi, 2007. "Participation in auctions," Games and Economic Behavior, Elsevier, vol. 60(1), pages 75-103, July.
    6. Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," American Economic Review, American Economic Association, vol. 99(4), pages 1544-1575, September.
    7. Philippe Jehiel & Laurent Lamy, 2020. "On the Benefits of Set-Asides," Journal of the European Economic Association, European Economic Association, vol. 18(4), pages 1655-1696.
    8. Laurent Lamy, 2013. "“Upping the ante”: how to design efficient auctions with entry?," RAND Journal of Economics, RAND Corporation, vol. 44(2), pages 194-214, June.
    9. Yizhaq Minchuk & Aner Sela, 2018. "Asymmetric sequential search under incomplete information," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(2), pages 315-325, June.
    10. Szech, Nora, 2011. "Optimal disclosure of costly information packages in auctions," Journal of Mathematical Economics, Elsevier, vol. 47(4-5), pages 462-469.
    11. Stephan Lauermann & Asher Wolinsky, 2024. "Auctions with Frictions: Recruitment, Entry, and Limited Commitment," ECONtribute Discussion Papers Series 288, University of Bonn and University of Cologne, Germany.
    12. Jinhyuk Lee & Jaeok Park, 2016. "Second-price auctions with sequential and costly participation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(3), pages 567-586, August.
    13. Shi, Xianwen, 2012. "Optimal auctions with information acquisition," Games and Economic Behavior, Elsevier, vol. 74(2), pages 666-686.
    14. Cremer, Jacques & Spiegel, Yossi & Zheng, Charles Z., 2006. "Optimal search auctions with correlated bidder types," Economics Letters, Elsevier, vol. 93(1), pages 94-100, October.
    15. Celik Gorkem & Yilankaya Okan, 2009. "Optimal Auctions with Simultaneous and Costly Participation," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-33, July.
    16. Hedyeh Beyhaghi & Linda Cai, 2023. "Recent Developments in Pandora's Box Problem: Variants and Applications," Papers 2308.12242, arXiv.org.
    17. Hagedorn, Marcus, 2009. "The value of information for auctioneers," Journal of Economic Theory, Elsevier, vol. 144(5), pages 2197-2208, September.
    18. Stephan Lauermann & Asher Wolinsky, 2024. "Auctions with Frictions: Recruitment, Entry, and Limited Commitment," CRC TR 224 Discussion Paper Series crctr224_2024_519, University of Bonn and University of Mannheim, Germany.
    19. Li, Daniel Z., 2017. "Ranking equilibrium competition in auctions with participation costs," Economics Letters, Elsevier, vol. 153(C), pages 47-50.
    20. Joosung Lee & Daniel Z. Li, 2018. "Sequential Search Auctions with a Deadline," Working Papers 2018_03, Durham University Business School.
    21. Xiaogang Che & Tilman Klumpp, 2023. "Auctions versus sequential mechanisms when resale is allowed," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(4), pages 1207-1245, May.
    22. Pancs, Romans, 2013. "Sequential negotiations with costly information acquisition," Games and Economic Behavior, Elsevier, vol. 82(C), pages 522-543.

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    More about this item

    Keywords

    optimal auction; optimal search; endogenous entry;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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