A typical (sealed-bid) auction has the exact same problem. I value the business at X, but know that I can bid less than X, probably still win, and keep more surplus.
To give bidders the incentive to bid their true value, you need a Vickrey auction where the winner only has to pay the next highest bid. But, this is suboptimal if there isn't a lot of liquidity. Also, you won't have the credibility to do this if you are auctioning off your own business (you have an incentive to lie about the next highest bid).
Ah, credibility issue. Never considered that one before. Couldn't you get around it by giving the bidders certain time slots to bid (and then reveal them in real time)? That way you could submit a "fake" bid, but you'd also risk pricing out the real bidders.
Comments
A typical (sealed-bid) auction has the exact same problem. I value the business at X, but know that I can bid less than X, probably still win, and keep more surplus.
To give bidders the incentive to bid their true value, you need a Vickrey auction where the winner only has to pay the next highest bid. But, this is suboptimal if there isn't a lot of liquidity. Also, you won't have the credibility to do this if you are auctioning off your own business (you have an incentive to lie about the next highest bid).
Ah, credibility issue. Never considered that one before. Couldn't you get around it by giving the bidders certain time slots to bid (and then reveal them in real time)? That way you could submit a "fake" bid, but you'd also risk pricing out the real bidders.