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    Rational Participation Revolutionizes Auction Theory

    Harstad, Ronald M.
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    [PDF] RationalParticipationRevolutionizesAuctionTheory.pdf (339.3Kb)
    Date
    2005
    Format
    Working Paper
    Metadata
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    Abstract
    Potential bidders respond to a seller's choice of auction mechanism for a common-value or affiliated-values asset by endogenous decisions whether to incur a participation cost (and observe a private signal), or forego competing. Privately informed participants decide whether to incur a bid-preparation cost and pay an entry fee, or cease competing. Auction rules and information flows are quite general; participation decisions may be simultaneous or sequential. The resulting revenue identity for any auction mechanism implies that optimal auctions are allocatively efficient; a nontrivial reserve price is revenue-inferior for any common-value auction. Optimal auctions are otherwise contentless: any auction that sells without reserve becomes optimal by adjusting any one of the continuous, spanning parameters, e.g., the entry fee. Seller's surplus-extracting tools are now substitutes, not complements. Many econometric studies of auction markets are seen to be flawed in their identification of the number of bidders.
    URI
    http://hdl.handle.net/10355/2623
    Part of
    Working papers (Department of Economics);WP 05-18
    Part of
    Economics publications
    Citation
    Department of Economics, 2005
    Collections
    • Economics publications (MU)

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