Crémer, Jacques; Spiegel, Yossi; Zheng, Charles Zhoucheng

Journal of Economic Theory Vol. 134 no. 1 (May 2007): 226-248.

We study the design of profit maximizing single unit auctions under the assumption that the seller needs to incur costs to contact prospective bidders and inform them about the auction. With independent biddersﾒ types and possibly interdependent valuations, the sellerﾒs problem can be reduced to a search problem in which the surplus is measured in terms of virtual utilities minus search costs. Compared to the socially efficient mechanism, the optimal mechanism features fewer participants, longer search conditional on the same set of participants, and inefficient sequence of entry.