Auctions vs negotiations: Optimal selling mechanism with endogenous bidder values
In this seminar, Dr Mengxi Zhang from the University of Bonn will examine the design of the revenue maximising selling mechanism.
Dr Mengxi Zhang's paper studies the design of the revenue maximising selling mechanism, when bidders can make costly investments up-front to enhance their valuations. Unlike in the case where bidders’ values are exogenously fixed, it may be profitable for the seller to discriminate among ex ante symmetric bidders.
The speaker will first identify a sufficient and almost necessary condition under which symmetric auctions are optimal. When this condition fails, the optimal selling mechanism may be discriminatory. She further finds that the optimal mechanism in general follows a structure which I call a threshold mechanism. Two extreme examples of the threshold mechanism are symmetric auctions and sequential negotiations. In any other case, a threshold mechanism can be implemented by a dynamic selling scheme which uses auctions and negotiations alternately.