Auctions with Private Entry Costs

Abstract

We study auctions where bidders have private information about their entry costs and the seller does not benefit from these entry costs. We consider a symmetric environment where all bidders have the same value for the object being sold, and also an asymmetric environment where bidders may have different valuations for the object. The auction designs that maximize the social surplus or the seller's payoff are analyzed.

Equilibria in first price auctions with participation costs

“…They introduce the notions of monotonic equilibrium and neg-monotonic equilibrium. Kaplan and Sela (2006) consider a private entry model in second price auctions in which they assume all bidders' valuations are common knowledge while participation costs are private information.…”

Auctions with heterogeneous entry costs

“…Green and Laffont (1984) study the existence of equilibrium in a model where, as in our setting, both entry costs and values are private information, but they assume, as in Samuelson (1985), that a buyer makes entry decisions having observed both her entry cost and her value. Kaplan and Sela (2003) study auctions where entry costs are private information but bidders’ values are commonly known. Lu (2010) provides an interesting characterization of the revenue‐maximizing admission fees in second‐price sealed‐bid auctions with heterogeneous entry costs.…”

Second‐Price Auctions with Different Participation Costs

“…Some others, such as Samuelson (1985), McAfee and McMillan (1987a,b), Harstad et al (1990), Levin and Smith (1994, 1996), Stegeman (1996), and Menezes and Monterio (2000) studied auctions with participation costs assuming bidders’ participation costs are the same. Kaplan and Sela (2006) studied equilibria of the second‐price auction with participation costs when bidders’ participation costs are private information while valuations are common knowledge.…”