University of Leicester
Browse
dp08-24.pdf (397.09 kB)

A dynamic mechanism and surplus extraction under ambiguity

Download (397.09 kB)
report
posted on 2010-02-12, 10:51 authored by Subir Bose, Arup Daripa
In the standard independent private values (IPV)model, each bidder’s beliefs about the values of any other bidder is represented by a unique prior. In this paper we relax this assumption and study the question of auction design in an IPV setting characterized by ambiguity: bidders have an imprecise knowledge of the distribution of values of others, and are faced with a set of priors. We also assume that their preferences exhibit ambiguity aversion; in particular, they are represented by the epsilon-contamination model. We show that a simple variation of a discrete Dutch auction can extract almost all surplus. This contrasts with optimal auctions under IPV without ambiguity as well as with optimal static auctions with ambiguity - in all of these, types other than the lowest participating type obtain a positive surplus. An important point of departure is that the modified Dutch mechanism we consider is dynamic rather than static, establishing that under ambiguity aversion–even when the setting is IPV in all other respects–a dynamic mechanism can have additional bite over its static counterparts.

History

Publisher

Dept. of Economics, University of Leicester

Available date

2010-02-12

Publisher version

http://www.le.ac.uk/economics/research/discussion/papers2008.html

Book series

Papers in Economics;08/24

Language

en

Usage metrics

    University of Leicester Publications

    Categories

    Exports

    RefWorks
    BibTeX
    Ref. manager
    Endnote
    DataCite
    NLM
    DC