Abstract: This paper studies optimal auction design in a private value setting with endogenous information acquisition. First, we develop a general framework for modeling information acquisition when a seller wants to sell an object to one of several potential buyers who can each gather information about their valuations prior to participation. We then show that under certain conditions, standard auctions with a reserve price remain optimal, but the optimal reserve price lies between the mean valuation and the standard reserve price in Myerson (1981). We provide sufficient conditions under which the value of information to the seller is positive, and also characterize the necessary and sufficient conditions under which equilibrium information acquisition in private value auctions is socially excessive. The key to the analysis is the insight that buyer incentives to acquire information become stronger as the reserve price moves toward the mean valuation.
Keywords: optimal auctions, information acquisition, rotation order, informational efficiency
JEL Classification: C70, D44, D82, D86