2. If rationing is allowed, with shares of the asset rationed among the t highest bidders, then the (t + 1)-st price auction yields the lowest revenue among all auctions with rationing in which only the winners pay and the unit price only depends on the losersí bids. Finally, we compute bidding functions and revenue of the k-th price auction, with and without rationing, for an illustrative example much used in the experimental literature to study first-price, second-price and English auctions."> 2. If rationing is allowed, with shares of the asset rationed among the t highest bidders, then the (t + 1)-st price auction yields the lowest revenue among all auctions with rationing in which only the winners pay and the unit price only depends on the losersí bids. Finally, we compute bidding functions and revenue of the k-th price auction, with and without rationing, for an illustrative example much used in the experimental literature to study first-price, second-price and English auctions.">
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Auctions in which Losers Set the Price

Author

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  • Mezzetti, Claudio
  • Tsetlin, Ilia
Abstract
We study auctions of a single asset among symmetric bidders with a¢ liated values. We show that the second-price auction minimizes revenue among all e¢ cient auction mechanisms in which only the winner pays, and the price only depends on the losersíbids. In particular, we show that the k-th price auction generates higher revenue than the second-price auction, for all k > 2. If rationing is allowed, with shares of the asset rationed among the t highest bidders, then the (t + 1)-st price auction yields the lowest revenue among all auctions with rationing in which only the winners pay and the unit price only depends on the losersí bids. Finally, we compute bidding functions and revenue of the k-th price auction, with and without rationing, for an illustrative example much used in the experimental literature to study first-price, second-price and English auctions.

Suggested Citation

  • Mezzetti, Claudio & Tsetlin, Ilia, 2008. "Auctions in which Losers Set the Price," Economic Research Papers 269843, University of Warwick - Department of Economics.
    • Handle: RePEc:ags:uwarer:269843
    DOI: 10.22004/ag.econ.269843
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    1. Parlour, Christine A. & Prasnikar, Vesna & Rajan, Uday, 2007. "Compensating for the winner's curse: Experimental evidence," Games and Economic Behavior, Elsevier, vol. 60(2), pages 339-356, August.
    2. Lopomo, Giuseppe, 2001. "Optimality and Robustness of the English Auction," Games and Economic Behavior, Elsevier, vol. 36(2), pages 219-240, August.
    3. Wolfstetter, Elmar, 1995. "Third- and higher-price auctions," SFB 373 Discussion Papers 1996,3, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    4. Dirk Bergemann & Stephen Morris, 2012. "Robust Mechanism Design," World Scientific Book Chapters, in: Robust Mechanism Design The Role of Private Information and Higher Order Beliefs, chapter 2, pages 49-96, World Scientific Publishing Co. Pte. Ltd..
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    7. Krishna, Vijay & Morgan, John, 1997. "An Analysis of the War of Attrition and the All-Pay Auction," Journal of Economic Theory, Elsevier, vol. 72(2), pages 343-362, February.
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    10. Kagel, John H & Levin, Dan, 1993. "Independent Private Value Auctions: Bidder Behaviour in First-, Second- and Third-Price Auctions with Varying Numbers of Bidders," Economic Journal, Royal Economic Society, vol. 103(419), pages 868-879, July.
    11. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
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    14. Paul Klemperer, 2004. "Auctions: Theory and Practice," Online economics textbooks, SUNY-Oswego, Department of Economics, number auction1.
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    16. Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071.
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    Cited by:

    1. Olga Gorelkina, 2014. "Bidder Collusion and the Auction with Target Bids," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2014_10, Max Planck Institute for Research on Collective Goods.
    2. Mares Vlad & Shor Mikhael, 2012. "On the Competitive Effects of Bidding Syndicates," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-33, September.

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    More about this item

    Keywords

    Demand and Price Analysis; Public Economics;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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