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Extraction of the surplus in standard auctions

Amarante, Massimiliano

Crémer and McLean [2] and McAfee and Reny [4] showed that, in "nearly all auctions", the seller can offer a mechanism that obtains full rent extraction. Later, Robert [8] showed that the result fails in the presence of either limited liability or risk aversion. This paper provides yet another reason. It shows that the full rent extraction result fails if the seller is restricted to using auctions where the bidders' payments to the seller depend on the bids alone. Our interest for this problem is motivated by the fact that both the "standard model of auction" ([3]) as well as the most popular auctions display this feature. As a general matter, the proof shows that full rent extraction results fail whenever the mechanism uses only part of the information embodied in a player's type.

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Academic Units
Economics
Publisher
Department of Economics, Columbia University
Series
Department of Economics Discussion Papers, 0102-73
Published Here
March 24, 2011

Notes

August 2003

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