There is by now a large literature arguing that auctions with a variety of after-market interactions may not yield an efficient allocation of the objects for sale, especially when the bidders impose strong negative externalities upon each other. In this note, we argue that these inefficiencies can be avoided by asking bidders prior to the auction to submit any publicly observable payment they would like to make. These payments, so-called flexible entry fees, do not affect the allocation decision of the auctioneer. We show that auctions with flexible entry fees have a fully revealing equilibrium where bidders signal their type before the auction itself takes place

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Keywords auctions, efficiency, entry fee, negative externality, revenue
Persistent URL dx.doi.org/10.1016/j.geb.2010.10.005, hdl.handle.net/1765/21429
Citation
Janssen, M.C.W, Karamychev, V.A, & Maasland, E. (2011). Auctions with flexible entry fees: A note. Games and Economic Behavior, 72(2), 594–601. doi:10.1016/j.geb.2010.10.005