Comparisons of standard royalty auctions with seller post-auction effort (Q6114949)

The authors consider standard royalty auction, in which each bidder's valuation is determined endogenously by his type and the seller's post-auction effort. This article discusses (1) the elimination of pooling equilibria and demonstrates that no symmetric (semi-) pooling perfect Bayesian equilibrium (PBE) survives the D1 criterion in standard royalty auctions, given certain mild conditions, (2) the role of entry fee when it replaces the reserve price chosen by the seller. More precisely, it is shown that the allocative efficiency, production efficiency, and seller revenue in second-price royalty auction (SPRA) are equal to those in English royalty auction (ERA), but inferior to the standard royalty auctions with observable winning bids. All proofs of the propositions are given in the Appendix.