Participation Costs and Efficient Auctions

Abstract Suppose that risk neutral agents have independently (and perhaps asymmetrically) distributed private valuations for an indivisible object. A mechanism assigns the object, but it is costly to send messages to the coordinator. In these circumstances, the second-price auction has an equilibrium that is classicallyex anteefficient, given general opportunities to invest in information about or enhancements of own valuations. In contrast, the first-price sealed bid auction may have no efficient equilibrium, even if buyers are symmetric. Other properties of the first-price auction are proved. A semirevelation principle is established for mechanisms with participation costs.Journal of Economic LiteratureClassification Numbers: D44, D82.