Bose, S. and Daripa, Arup (2007) A dynamic mechanism and surplus extraction under ambiguity. Working Paper. Birkbeck, University of London, London, UK.
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Abstract
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. 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. And, unlike the well-known Cremer-McLean mechanism, our modified Dutch mechanism satisfies limited liability. 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 could have additional bite over its static counterparts.
Metadata
| Item Type: | Monograph (Working Paper) |
|---|---|
| Additional Information: | BWPEF 0716 |
| Keyword(s) / Subject(s): | Ambiguity Aversion, Modified Dutch Auction, Surplus Extraction |
| School: | Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Depositing User: | Administrator |
| Date Deposited: | 26 Mar 2019 15:02 |
| Last Modified: | 02 Aug 2023 17:50 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/26896 |
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