School of Economics and Finance

No. 670: Optimal Mechanisms for an Auction Mediator

Alexander Matros , University of South Carolina
Andriy Zapechelnyuk , Queen Mary, University of London

August 1, 2010

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We consider a dynamic auction environment with a long-lived seller and short-lived buyers mediated by a third party. A mediator has incomplete information about traders' values and selects an auction mechanism to maximize her expected revenue. We characterize mediator-optimal mechanisms and show that an optimal mechanism has a simple implementation as a Vickrey auction with a reserve price where the seller pays to the mediator only a fixed percentage from the closing price.

J.E.L classification codes: C73, D44, D82

Keywords:Optimal mechanism, Vickrey auction, Mediator