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A Theory of Auctions with Endogenous Valuations

Gershkov, Alexander, Moldovanu, Benny, Strack, Philipp and Zhang, Mengxi (2020) A Theory of Auctions with Endogenous Valuations Journal of Political Economy.

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We derive the revenue maximizing allocation of m units among n symmetric agents who have unit demand, and who take costly actions that in uence their values before participating in the mechanism. The allocation problem with costly actions can be represented by a reduced form model where agents have convex, non-expected utility preferences over the interim probability of receiving an object. Both the uniform m+1 price auction and the discriminatory pay-your-bid auction with reserve price constitute symmetric revenue maximizing mechanisms. Contrasting the case with exogenous valuations, the optimal reserve price reacts to both demand and supply. We also identify a condition under which the optimal mechanism is indeed symmetric, and illustrate the structure of the optimal asymmetric mechanism when the condition fails. The main tool in our analysis is an integral inequality, due to Fan and Lorentz (1954), involving majorization, super-modularity and convexity.

Item Type: Article
Divisions : Faculty of Arts and Social Sciences > School of Economics
Authors :
Moldovanu, Benny
Strack, Philipp
Zhang, Mengxi
Date : 4 August 2020
Additional Information : Embargo OK Metadata Pending
Depositing User : James Marshall
Date Deposited : 11 Aug 2020 08:39
Last Modified : 11 Aug 2020 08:39

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