Social Science Job Candidate Seminar

I consider the mechanism design problem of a seller who is uninformed about demand, while potential buyers are well-informed. The seller knows that (1) values are private, (2) buyers' beliefs are consistent with a common prior, and (3) the support of values is bounded by a constant multiple of the expected efficient surplus. The seller's goal is to maximize the minimum ratio between expected revenue and the expected efficient surplus, which I term the extraction ratio.

I characterize simple mechanisms that maximize the minimum extraction ratio. In these mechanisms, the seller runs a second-price auction and also surveys the beliefs of buyers about others values. Losing bidders' responses to the survey are used to set the reserve price for the winner. Such mechanisms guarantee the seller a substantial share of the efficient surplus, with the share parametrized by the bound on the highest value. If values can be up to ten times the expected efficient surplus, the seller is guaranteed a 20% revenue-share; up to 1,000 times, and the seller is guaranteed 10%.

The paper is also available at: http://megabeast.princeton.edu/benbrooks_jmp.pdf