Why a simple second-price auction induces efficient endogenous entry (Q1025649)

The author presents a new method to study ex ante efficient auctions in the setting of \textit{M. Stegeman} [J. Econ. Theory 71, No. 1, 228--259 (1996; Zbl 0864.90038)], where bidders who know their valuation are faced with entry costs. He gives a new proof of the following result by Stegeman: the ex ante efficient allocation can always be Bayesian implementable through the second-price auction with a reserve price equal to seller's valuation and no entry fee. Due to the applied approach, the author is able to solve the problem of indeterminacy in entry for this type of auction by proposing an alternative second-price auction that implements uniquely the efficient entry through dominant strategy. This alternative is a modified second-price auction with a contingent entry subsidy for each bidder that equals his entry cost, and a minimum price that equals the efficient entry threshold for him.