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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 (2020) Costly auction entry, royalty payments, and the optimality of asymmetric designs. Journal of Economic Theory, 188 . 105041. doi:10.1016/j.jet.2020.105041
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Official URL: https://doi.org/10.1016/j.jet.2020.105041
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: | Journal Article | |||||||||
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| Subjects: | H Social Sciences > HF Commerce | |||||||||
| Divisions: | Faculty of Social Sciences > Economics | |||||||||
| Library of Congress Subject Headings (LCSH): | Auctions, Auctions -- Economic aspects | |||||||||
| Journal or Publication Title: | Journal of Economic Theory | |||||||||
| Publisher: | Elsevier | |||||||||
| ISSN: | 0022-0531 | |||||||||
| Official Date: | July 2020 | |||||||||
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| Date of first compliant deposit: | 9 March 2020 | |||||||||
| Volume: | 188 | |||||||||
| Article Number: | 105041 | |||||||||
| DOI: | 10.1016/j.jet.2020.105041 | |||||||||
| Status: | Peer Reviewed | |||||||||
| Publication Status: | Published | |||||||||
| Access rights to Published version: | Restricted or Subscription Access | |||||||||
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