Auctions vs. Negotiations: Optimal Selling Mechanism with Endogenous Bidder Values

Economics

Speaker:Mengxi Zhang, University of Bonn
Date: Friday 5 October 2018
Time: 14.00
Location: Matrix Lecture Theatre, Building One

Further details

Abstract: This paper studies the design of the revenue maximizing selling mechanism, when bidders can make costly investments up-front to enhance their valuations. Unlike in the case where bidders’ values are exogenously fixed, it may be profitable for the seller to discriminate among ex ante symmetric bidders. I first identify a sufficient and almost necessary condition under which symmetric auctions are optimal. When this condition fails, the optimal selling mechanism may be discriminatory. I further find that the optimal mechanism in general follows a structure which I call a threshold mechanism. Two extreme examples of the threshold mechanism are symmetric auctions and sequential negotiations. In any other case, a threshold mechanism can be implemented by a dynamic selling scheme which utilizes auctions and negotiations alternately.