Extraction of the Surplus in Standard Auctions

Crémer and McLean [1] and McAfee and Reny [3] showed that, in “nearly all auctions”, the seller can offer a mechanism that obtains full rent extraction. The mechanism designed by Crémer and McLean differs from standard procedures in several respects. Notably, (a) bidders are required to buy “lotteries” in order to partecipate at the auction; (b) bidders are treated non-anonymously, in the sense that different bidders are given different strategic options; (c) the bidders’ payments to the seller depend not only on the bids but also on some other “actions” taken by the bidders. In this paper, I keep (a) and (b), and impose that — like in the “standard model of auctions” — the bidders’ payments to the seller depend on the bids alone. I find that the full-surplus extraction result no longer holds: There are “open sets” of auctions where the full extraction is not possible.