Surplus extraction and competition (Q2763326)

A perfectly competitive economy is studied where sellers offer alternative direct mechanisms to buyers who have correlated private information about their valuations. It is shown that in the unique symmetric equilibrium with competition, sellers hold second-price auctions with reserve prices set equal to their cost. Furthermore, it is a best reply for sellers not to charge entry fees of the kind normally used to extract surplus, even though it is feasible for them to do so.