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| Leandro Arozamena, Nicholas Shunda and Federico Weinschelbaum |
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| ''Optimal nondiscriminatory auctions with favoritism'' |
| ( 2014, Vol. 34 No.1 ) |
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| In many auction settings, there is favoritism: the seller's welfare depends positively on the utility of a subset of potential bidders. However, laws or regulations may not allow the seller to discriminate among bidders. We find the optimal nondiscriminatory auction in a private value, single-unit model under favoritism. At the optimal auction there is a reserve price, or an entry fee, which is decreasing in the proportion of preferred bidders and in the intensity of the preference. Otherwise, the highest-valuation bidder wins. We show that, at least under some conditions, imposing a no-discrimination constraint raises expected seller revenue. |
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| Keywords: auctions, favoritism, nondiscriminatory mechanisms |
JEL:
D4 - Market Structure and Pricing: General |
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| Manuscript Received : Oct 18 2013 | | Manuscript Accepted : Feb 11 2014 |
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