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Value Design in Optimal Mechanisms

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  • Anja Prummer
  • Francesco Nava

Abstract

A principal allocates a single good to one of several agents whose values are privately and independently distributed, employing an optimal mechanism. The principal shapes the distribution of the agents' values within general classes of constraints. Divisive product designs, which are either highly favored or met with indifference, can simultaneously enhance surplus and diminish information rents by making agents' values more readily discernible. However, such designs also reduce competition among agents. Divisive designs are optimal under various design constraints, as the main drivers of revenue lie in increasing surplus and minimizing information rents, while competition plays a secondary role.

Suggested Citation

  • Anja Prummer & Francesco Nava, 2023. "Value Design in Optimal Mechanisms," Economics working papers 2023-05, Department of Economics, Johannes Kepler University Linz, Austria.
    • Handle: RePEc:jku:econwp:2023-05
    Note: English
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    File URL: http://www.econ.jku.at/papers/2023/wp2305.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Value Design; Mechanism Design; Differentiation;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - Value Theory
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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