ENTRY COORDINATION AND AUCTION DESIGN WITH PRIVATE COSTS OF INFORMATION ACQUISITION

Authors

  • JINGFENG LU

    1. Lu: Assistant Professor, Department of Economics, National University of Singapore, Singapore 117570. Tel (65) 6516-6026, Fax (65) 6775-2646, E-mail ecsljf@nus.edu.sg
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      I am very grateful to Preston McAfee and two anonymous referees for insightful comments and suggestions, which greatly improved the quality of this article. I thank Murali Agastya, Parimal Bag, Indranil Chakraborty, Jeff Ely, Daniel Friedman, Atsushi Kajii, Chenghu Ma, Steven Morris, and Ruqu Wang for helpful discussions, comments, and suggestions. Previous versions have been presented at the 17th International Game Theory Conference at Stony Brook, the 2006 Hong Kong Economic Association Meeting and the 2007 NUS economic theory conference. All errors are mine. Financial support from National University of Singapore (R-122-000-106-112) is gratefully acknowledged.


Abstract

Auction design with endogenous entry is complicated by entry coordination among bidders due to multiple entry equilibria issue. This article studies auction design when information acquisition costs are private information of bidders. We show that this problem can be resolved by sufficient dispersion in these costs. First, we find that a simple second-price auction with no entry fee and a reserve price equal to the seller's valuation is ex ante efficient, while a revenue-maximizing auction involves personalized entry fees, which are determined by the hazard rates of their information acquisition cost distribution. Second, we show that sufficient dispersion in the information acquisition costs (more dispersion than a particular uniform distribution by the Bickel-Lehman dispersive order) can coordinate bidders and implement uniquely the desirable entry. The dispersion in information acquisition costs is also necessary for this “unique implementation” result. (JEL D44, D82)

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