The relationship between the allocation of goods and a seller's revenue (Q1877826)

The authors consider the situation of a seller (monopolist) auctioning off a set of objects to a large number of bidders. The main questions of the paper are whether the high degree of competition among the buyers enables the seller to gain the full possible surplus from sale of the objects and whether the seller benefits from the allocation of objects in an efficient manner. The assumed condition (a self-enforcing mechanism) is that bidders do not wish to leave after observing the price that they must pay. This condition is stronger than an interim individual rationality constraint, but weaker than an ex-post participation constraint. The results, obtained using standard techniques, are as follows. For the efficient allocation concentrated among a few agents, any mechanism that achieves the efficient allocation also extract the entire surplus. In the case of when the efficient allocation is dispersed, no mechanism can extract the entire surplus.