Abstract:

When bidders have correlated private information, optimal auction mechanisms screen bidders based on their beliefs. We show that the possibility of ex post withdrawal by bidders provides a foundation for uniform price auctions that applies even in settings with correlated information. Withdrawal rights therefore provide a realistic framework for studying optimal auction design with correlated information. Our results are not driven by ex post individual rationality constraints or their interaction with the winner’s curse. Instead, our analysis relies on a strategic impact of withdrawal rights: bidders can engage in “double deviations” that involve misreporting and then (sometimes) withdrawing ex post.

Joint with Alexander Haberman.

Paper available here.