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The Product-Mix Auction: A New Auction Design for Differentiated Goods

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  • Paul Klemperer

Abstract

I describe a new static (sealed-bid) auction for differentiated goods--the "Product-Mix Auction." Bidders bid on multiple assets simultaneously, and bid-takers choose supply functions across assets. The auction yields greater efficiency, revenue, information, and trade than running multiple separate auctions. It is also often simpler to use and understand, and less vulnerable to collusion, than a simultaneous multiple round auction. I designed it after the 2007 Northern Rock bank run to help the Bank of England fight the credit crunch; in 2008 the U.S. Treasury planned using a related design to buy "toxic assets"; it may be used to purchase electricity. (JEL: D44, E58) (c) 2010 by the European Economic Association.

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Bibliographic Info

Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 8 (2010)
Issue (Month): 2-3 (04-05)
Pages: 526-536

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Handle: RePEc:tpr:jeurec:v:8:y:2010:i:2-3:p:526-536

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  1. Poole, William, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, MIT Press, vol. 84(2), pages 197-216, May.
  2. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521551847, December.
  3. Kremer, Ilan & Nyborg, Kjell G, 2004. "Underpricing and Market Power in Uniform Price Auctions," CEPR Discussion Papers 4363, C.E.P.R. Discussion Papers.
  4. Paul Klemperer, 2004. "Auctions: Theory and Practice," Economics Series Working Papers 2004-W09, University of Oxford, Department of Economics.
  5. Paul Klemperer & Margaret Meyer, 1986. "Price Competition vs. Quantity Competition: The Role of Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 618-638, Winter.
  6. Klemperer, Paul D & Meyer, Margaret A, 1989. "Supply Function Equilibria in Oligopoly under Uncertainty," Econometrica, Econometric Society, vol. 57(6), pages 1243-77, November.
  7. M. L. Weitzman, 1973. "Prices vs. Quantities," Working papers 106, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Lawrence M. Ausubel & Peter Cramton & Emel Filiz-Ozbay & Nathaniel Higgins & Erkut Ozbay & Andrew Stocking, 2009. "Common-Value Auctions with Liquidity Needs: An Experimental Test of a Troubled Assets Reverse Auction," Papers of Peter Cramton 09cvawln, University of Maryland, Department of Economics - Peter Cramton, revised 2012.
  9. Lawrence M. Ausubel & Peter Cramton, 2008. "A Troubled Asset Reverse Auction," Papers of Peter Cramton 08tara, University of Maryland, Department of Economics - Peter Cramton, revised 2008.
  10. Kelso, Alexander S, Jr & Crawford, Vincent P, 1982. "Job Matching, Coalition Formation, and Gross Substitutes," Econometrica, Econometric Society, vol. 50(6), pages 1483-1504, November.
  11. Gul, Faruk & Stacchetti, Ennio, 1999. "Walrasian Equilibrium with Gross Substitutes," Journal of Economic Theory, Elsevier, vol. 87(1), pages 95-124, July.
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Cited by:
  1. Xavier Vives, 2008. "Strategic Supply Function Competition with Private Information," CESifo Working Paper Series 2410, CESifo Group Munich.
  2. Erdil, Aytek & Klemperer, Paul, 2009. "A New Payment Rule for Core-Selecting Package Auctions," CEPR Discussion Papers 7487, C.E.P.R. Discussion Papers.
  3. Thomas Greve & Michael G. Pollitt, 2013. "Determining the optimal length of regulatory guarantee: A Length-of-Contract Auction," Cambridge Working Papers in Economics 1348, Faculty of Economics, University of Cambridge.

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