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Costly auction entry, royalty payments, and the optimality of asymmetric designs
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Bernhardt, Dan, Liu, Tingjun and Sogo, Takeharu (2019) Costly auction entry, royalty payments, and the optimality of asymmetric designs. Working Paper. Coventry: University of Warwick. Department of Economics. Warwick economics research papers series (WERPS) (1200). (Unpublished)
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Official URL: https://warwick.ac.uk/fac/soc/economics/research/w...
Abstract
We analyze optimal auction mechanisms when bidders base costly entry decisions on their valuations, and bidders pay with a fixed royalty rate plus cash. With sufficient valuation uncertainty relative to entry costs, the optimal mechanism features asymmetry so that bidders enter with strictly positive but different (ex-ante) probabilities. When bidders are ex-ante identical, higher royalty rates—which tie payments more closely to bidder valuations—increase the optimal degree of asymmetry in auction design, further raising revenues. When bidders differ ex-ante in entry costs, the seller favors the low cost entrant; whereas when bidders have different valuation distributions, the seller favors the weaker bidder if entry costs are low, but not if they are high. Higher royalty rates cause the seller to favor the weaker bidder by less, and the strong bidder by more.
| Item Type: | Working or Discussion Paper (Working Paper) | ||||||
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| Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HF Commerce |
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| Divisions: | Faculty of Social Sciences > Economics | ||||||
| Library of Congress Subject Headings (LCSH): | Auctions , Auctions -- Econometric models, Cost -- Econometric models | ||||||
| Series Name: | Warwick economics research papers series (WERPS) | ||||||
| Publisher: | University of Warwick. Department of Economics | ||||||
| Place of Publication: | Coventry | ||||||
| ISSN: | 0083-7350 | ||||||
| Official Date: | June 2019 | ||||||
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| Number: | 1200 | ||||||
| Institution: | University of Warwick | ||||||
| Status: | Not Peer Reviewed | ||||||
| Publication Status: | Unpublished | ||||||
| Access rights to Published version: | Open Access | ||||||
| RIOXX Funder/Project Grant: |
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