Optimal auction design under costly learning
Optimal auction design under costly learning
We study optimal auction design in an independent private values environment where bidders can endogenously-but at a cost-improve information about their own valuations. The optimal mechanism is two-stage: at stage-1 bidders register an information acquisition plan and pay a transfer; at stage-2 they bid, and allocation and payments are determined. We show that the revenue-optimal stage-2 rule is the Vickrey-Clarke-Groves (VCG) mechanism, while stage-1 transfers implement the optimal screening of types and absorb information rents consistent with incentive compatibility and participation. By committing to VCG ex post, the pre-auction information game becomes a potential game, so equilibrium information choices maximize expected welfare; the stage-1 fee schedule then transfers an optimal amount of payoff without conditioning on unverifiable cost scales. The design is robust to asymmetric primitives and accommodates a wide range of information technologies, providing a simple implementation that unifies efficiency and optimal revenue in environments with endogenous information acquisition.
optimal auction design, costly learning, vcg mechanism, second-price auctions, revenue maximization, welfare maximization, chain closure
Ozbek, Kemal
e7edfcf5-cb17-4e64-bfa4-30fb527d2e46
2025
Ozbek, Kemal
e7edfcf5-cb17-4e64-bfa4-30fb527d2e46
Ozbek, Kemal
(2025)
Optimal auction design under costly learning
25pp.
Record type:
Monograph
(Working Paper)
Abstract
We study optimal auction design in an independent private values environment where bidders can endogenously-but at a cost-improve information about their own valuations. The optimal mechanism is two-stage: at stage-1 bidders register an information acquisition plan and pay a transfer; at stage-2 they bid, and allocation and payments are determined. We show that the revenue-optimal stage-2 rule is the Vickrey-Clarke-Groves (VCG) mechanism, while stage-1 transfers implement the optimal screening of types and absorb information rents consistent with incentive compatibility and participation. By committing to VCG ex post, the pre-auction information game becomes a potential game, so equilibrium information choices maximize expected welfare; the stage-1 fee schedule then transfers an optimal amount of payoff without conditioning on unverifiable cost scales. The design is robust to asymmetric primitives and accommodates a wide range of information technologies, providing a simple implementation that unifies efficiency and optimal revenue in environments with endogenous information acquisition.
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Published date: 2025
Keywords:
optimal auction design, costly learning, vcg mechanism, second-price auctions, revenue maximization, welfare maximization, chain closure
Identifiers
Local EPrints ID: 510691
URI: http://eprints.soton.ac.uk/id/eprint/510691
PURE UUID: e2165cca-fae5-4673-bf7d-03d9fb34b6e2
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Date deposited: 16 Apr 2026 17:04
Last modified: 17 Apr 2026 02:01
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