Working paper

Revenue-capped efficient auctions

Nozomu Muto, Yasuhiro Shirata, and Takuro Yamashita

Abstract

We study an auction that maximizes the expected social surplus under an upperbound constraint on the seller's expected revenue, which we call a revenue cap. Such a constrained-efficient auction may arise, for example, when: (i) the auction designer is "pro-buyer", that is, he maximizes the weighted sum of the buyers' and seller's auction payoffs, where the weight for the buyers is greater than that for the seller; (ii) the auction designer maximizes the (unweighted) total surplus in a multi-unit auction in which the number of units the seller owns is private information; or (iii) multiple sellers compete to attract buyers before the auction. We characterize the mechanisms for constrained-efficient auctions and identify their important properties. First, the seller sets no reserve price and sells the good for sure. Second, with a nontrivial revenue cap, "bunching" is necessary. Finally, with a sufficiently severe revenue cap, the constrained-efficient auction has a bid cap, so that bunching occurs at least "at the top," that is, "no distortion at the top" fails.

Reference

Nozomu Muto, Yasuhiro Shirata, and Takuro Yamashita, Revenue-capped efficient auctions, TSE Working Paper, n. 18-940, July 2018.

See also

Published in

TSE Working Paper, n. 18-940, July 2018