Efficiency Through Revenue Redistribution in Auctions with Entry

We consider a single-item private values auction setting with endogenous costly entry. We demonstrate that for symmetric bidders and entry costs that are an arbitrary linear function of value, a unique symmetric Bayes-Nash “cutoff equilibrium” (where only agents with value above some threshold enter) obtains under the Vickrey auction and also a broader class of revenue-redistributing auctions. We show that when there are participation externalities and entry costs decrease as participation increases (e.g., when there is a search cost associated with obscure auctions), the Vickrey auction is inefficient and a revenue-redistributing auction dominates. We characterize welfare-maximizing allocatively-efficient auctions in such settings, and identify conditions under which the optimum can be achieved without running a deficit.