Auctions with Costly Information Acquisition

We characterize optimal selling mechanisms in auction environments where biddersmust incur a cost to learn their valuations. These mechanisms specify for eachperiod, as a function of the bids in previous periods, which new potential buyersshould be asked to bid. In addition, these mechanisms must induce the bidders toacquire information about their valuations and to reveal this information truthfully.Using a generalized Groves principle, we prove a very general “full extraction ofthe surplus” result: the seller can obtain the same profit as if he had full controlover the bidders’ acquisition of information and could have observed directly theirvaluations once they are informed. We also present appealing implementations ofthe optimal mechanism in special cases.[...]