Optimal Auctions with Information Acquisition (Job Market Paper)

This paper studies optimal auction design in a private value setting where a seller wants to sell a single object to one of several potential buyers who can each covertly acquire information about their valuations prior to participation. A simple but robust finding is that the buyers' incentives to acquire information increase as the reserve price moves toward the mean valuation. Thus, a seller who wants to encourage information acquisition should set the reserve price closer to the mean valuation than the standard reserve price in Myerson (1981). We present conditions under which the seller will prefer that the buyers acquire more information, conditions under which standard auctions with an adjusted reserve price are optimal, and conditions under which the buyers will acquire socially excessive information in standard auctions. These results are obtained in a general setting with rotation-ordered information structures and continuous information acquisition.