An Optimal Auction with Correlated Values and Risk Aversion

We consider an auction setting where the buyers are risk averse with private but correlated valuations and characterize the optimal efficient mechanism for a risk neutral seller. We show that in our model, the optimal auction extracts all consumer surplus whenever the correlation is stronger than 1/3. We briefly discuss the possibility of a risk averse seller, with the main observation that a sufficiently risk averse seller tends not to use full rent extracting mechanisms for any positive correlation of the valuations, even if the buyers are risk neutral.