The Optimality of Being Efficient
The Optimality of Being Efficient
Files
Publication or External Link
Date
2001-03
Authors
Ausubel, Lawrence M.
Cramton, Peter
Advisor
Citation
"The Optimality of Being Efficient," (with Lawrence M. Ausubel) Working Paper, University of Maryland, March 2001.
DRUM DOI
Abstract
In an optimal auction, a revenue-optimizing seller often awards goods inefficiently, either by
placing them in the wrong hands or by withholding goods from the market. This conclusion
rests on two assumptions: (1) the seller can prevent resale among bidders after the auction; and
(2) the seller can commit to not sell the withheld goods after the auction. We examine how the
optimal auction problem changes when these assumptions are relaxed. In sharp contrast to the
no resale assumption, we assume perfect resale: all gains from trade are exhausted in resale. In a
multiple object model with independent signals, we characterize optimal auctions with resale.
We prove generally that with perfect resale, the seller’s incentive to misassign goods is
destroyed. Moreover, with discrete types, any misassignment of goods strictly lowers the
seller’s revenue from the optimum. In auction markets followed by perfect resale, it is optimal
to assign goods to those with the highest values.