Auction design with shortlisting when value discovery is covert (Q6170030)

The article is dedicated to the well-studied model for optimal auction design when buyers' value discovery investment is covert but essential for mutually beneficial trade between seller and buyers. More precisely, the authors derive the optimal auction for a given \(N\). The optimal shortlisting policy is then completely characterized in Section 3.2 (see Propositions 5--6). Section 3.3 contains a discussion of several aspects of the proposed model. For example, the following is valid: Proposition 7. Suppose the seller can observe the value discovery investment. The revenue-maximizing strategy for the seller is to shortlist \(N_c\) uniformed buyers and charge each of them an ex-ante fee of \(f=u_N(\nu_0)-c\). She commits to running an efficient auction among the shortlisted. Equilibrium value discovery is socially efficient and the seller gets the entire social surplus \(W_{N_c}(\nu_0)-N_cc\).