Optimal Search Auctions

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Article Snapshot

Author(s)

Jacques Crémer, Yossi Spiegel and Charles Z. Zheng

Source

Journal of Economic Theory, Vol. 134, No. 1, pp. 226-248, 2007

Summary

This paper considers the problem of how a seller using auctions can find bidders and increase revenues.

Policy Relevance

The methods that sellers use to identify bidders can increase or decrease their revenues.

Main Points

  • Many studies of auctions assume that bidders are already identified. This study asks what happens when the seller must find and contact bidders.
    • The seller might find it costly to contact all bidders at the same time; if he finds a bidder willing to pay a good price before the auction starts, the seller might be best off selling to him and not holding the auction at all.
    • When the good being sold is complex, such as a share of a state-owned firm, the seller might need to meet in person with bidders and describe the good in detail.
    • The seller wants a system that will encourage bidders to give him truthful information about their needs and what they are willing to pay.

 

  • Relevant factors include the period of time the seller has been looking for a buyer: the seller’s disclosure of bidding history, such as whether the bidder is the first bidder contacted, affects buyers.
    • Sellers tend to earn more revenues with full disclosure.

 

  • When an auction is designed to maximize revenue, sellers tend to adopt methods of identifying bidders that are more costly.

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