Optimal posted price mechanism vs auction under common value environment

This paper investigates the revenue maximizing mechanisms in the simple common value environment. We analyzed optimal posted price mechanism under the discrete common value environment in which bidders get some noisy signals about the value of the object and seller sets a fixed posted price but she determines the selling probabilities of the good conditional on the signals that bidders state. In this mechanism, whenever seller decides to sell the good she picks a bidder randomly and sells to him. By doing so we aimed to eliminate so-called winner's curse and to increase revenue for the seller under this common value environment. Moreover, under the same environment we also calculated the expected revenue of the second-price auction mechanism. After finding optimal posted price mechanism, we compared the expected revenues of these two mechanisms. Finally, we offered an alternative posted-price mechanism for easy comparison of auction and posted price mechanism when number of bidders tends to infinity.