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Auction design by an informed seller: A foundation of reserve price signalling

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  • Xin Zhao

Abstract

This paper studies mechanism design by a seller privately informed of the (continuous) quality of an indivisible object. An important solution to this informed‐principal problem, the Rothschild–Stiglitz–Wilson mechanisms, which correspond to the least‐cost separating allocations in the signalling literature, is characterized. The characterization reveals that reserve prices are the least costly device to separate sellers of different qualities: In the RSW mechanisms, the lowest‐quality seller adopts her public‐information optimal selling procedure, and each higher‐quality seller adopts a selling procedure that differs from her public‐information optimal one only in that the reserve prices are higher. This finding provides a mechanism‐design foundation for reserve‐price signalling studied in the literature. Conception des enchères par un vendeur averti : Fondement de la signalisation du prix de réserve. L'article étudie la conception de mécanismes par un vendeur averti en privé de la qualité d'un objet indivisible. La confidentialité des renseignements du vendeur est d'intérêt pour la conception de mécanismes : sélectionner un mécanisme qui optimise le profit du vendeur lorsque l'information est publique n'est pas compatible avec une mesure incitative pour le vendeur lorsque son information est privée, puisqu'un vendeur de faible qualité peut tirer avantage d'imiter un vendeur de qualité supérieure. Je montre que les prix de réserve constituent la méthode la moins coûteuse pour distinguer les vendeurs de qualité supérieure des vendeurs de qualité inférieure. Dans les équilibrent qui optimisent le profit attendu pour chaque type de vendeur parmi toutes les façons de séparer les équilibres, le vendeur de plus basse qualité adopte le mécanisme optimal d'information publique et chaque vendeur de qualité supérieure adopte un mécanisme qui ne diffère du mécanisme optimal d'information publique que par la hausse des prix de réserve.

Suggested Citation

  • Xin Zhao, 2023. "Auction design by an informed seller: A foundation of reserve price signalling," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(3), pages 1161-1190, August.
    • Handle: RePEc:wly:canjec:v:56:y:2023:i:3:p:1161-1190
    DOI: 10.1111/caje.12676
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    References listed on IDEAS

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