Optimal auction design under non-commitment

We characterize revenue-maximizing mechanisms in Myerson's (1981) environment when the seller behaves sequentially rationally, in the sense that she cannot commit not to propose a new mechanism if the previously chosen one fails to allocate the object. We show that the seller-optimal mechanism...

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Bibliographic Details
Published in:Journal of economic theory 2015-09, Vol.159, p.854-890
Main Author: Skreta, Vasiliki
Format: Article
Language:English
Subjects:
Auctions
Economic theory
International trade
Limited commitment
Mechanism design
Optimal auctions
Revenue
Studies
Vendors
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Summary:We characterize revenue-maximizing mechanisms in Myerson's (1981) environment when the seller behaves sequentially rationally, in the sense that she cannot commit not to propose a new mechanism if the previously chosen one fails to allocate the object. We show that the seller-optimal mechanism takes the same form as in the case when there is commitment: The seller maximizes revenue by assigning, at t=1, the good to the buyer with the highest virtual valuation if it is above a buyer-specific reserve price. If no trade takes place at t=1, at t=2, the seller assigns the object to the buyer with the highest posterior virtual valuation, provided that it is above the seller's value.
ISSN:0022-0531
1095-7235
DOI:10.1016/j.jet.2015.04.007