SMU SOE Seminar (Aug 22, 2019): Optimal auction design with common values: An informationally-robust approach

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TOPIC:

OPTIMAL AUCTION DESIGN WITH COMMON VALUES: AN INFORMATIONALLY-ROBUST APPROACH

ABSTRACT A Seller has a single unit of a good to sell to a group of bidders. The good is costly to produce, and the bidders have a pure common value that may be higher or lower than the production cost. The value is drawn from a prior distribution that is commonly known. The Seller does not know the bidders’ beliefs about the value and evaluates each auction mechanism according to the lowest expected proﬁt across all Bayes Nash equilibria and across all common-prior information structures that are consistent with the given known value distribution. We construct an optimal auction for such a Seller. The optimal auction has a relatively simple structure, in which bidders send one-dimensional bids, the aggregate allocation is a function of the aggregate bid, and individual allocations are proportional to bids. The accompanying transfers solve a system of diﬀerential equations that aligns the Seller’s proﬁt with the bidders’ local incentives. We report a number of additional properties of the maxmin mechanisms, including what happens as the number of bidders grows large and robustness with respect to the prior on the value. Keywords: Mechanism design, information design, optimal auctions, proﬁt maximization, common value, information structure, maxmin, Bayes correlated equilibrium, direct mechanism. JEL Codes: C72, D44, D82, D83. Click here to view the paper. Click here to view the CV.
		PRESENTER Songzi Du University of California San Diego
		RESEARCH FIELDS Game Theory Mechanism Design Market Microstructure
		DATE: 22 August 2019 (Thursday)
		TIME: 4pm - 5.30pm
		VENUE: Meeting Room 5.1, Level 5 School of Economics Singapore Management University 90 Stamford Road Singapore 178903

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