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  4. August 2015
  5. On Discrimination in Auctions with Endogenous Entry

On Discrimination in Auctions with Endogenous Entry

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Abstract

When entry is exogenous, strong buyers should be discriminated against weak buyers to maximize revenues (Myerson 1981). When entry is endogenous so that entrants' expected payoffs do not depend on the proposed mechanism, optimal discrimination takes a completely different form. The revenue-maximizing equilibrium requires that there should be no discrimination with respect to entrants irrespective of their ex ante characteristics. Besides, those buyers who always participate should be discriminated against entrants independently of their strength. These predictions are independent of the equilibrium selection when the number of potential entrants grows large. The optimality of first-price auctions is also discussed. (JEL D44, H57)

Citation

Jehiel, Philippe, and Laurent Lamy. 2015. "On Discrimination in Auctions with Endogenous Entry." American Economic Review, 105 (8): 2595-2643. DOI: 10.1257/aer.20131580

Additional Materials

JEL Classification

  • D44 Auctions
  • H57 National Government Expenditures and Related Policies: Procurement