Nora Szech

Journal of Economic Theory, 2011, Vol. 146, Issue 6, 2596-2607 DOI:10.1016/j.jet.2011.10.010

We study a symmetric independent private values auction model where the revenue-maximizing seller faces a cost c_n of attracting n bidders to the auction. If the distribution of valuations possesses an increasing failure rate (IFR), the seller overinvests in attracting bidders compared to the social optimum. Conversely, if the distribution is DFR, the seller underinvests compared to the social optimum. If the distribution of valuations becomes more dispersed, both, a revenue- and a welfare-maximizing seller, attract more bidders.