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Optimal Auction Design with Discrete Bidding

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  • Harrison Cheng

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    (University of Southern California, visiting Institute of Economic Research, Kyoto University)

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    Abstract

    We develop the theory of optimal auction design in a discrete bidding model. Examples show that many of the equivalence results or other well-known results may fail in an auction with discrete bidding. We show that the optimal auciton problem, however, has a similar solution. We formulate a payoff formula which is a discrete version of the one for the continuous bidding model. We show that an optimal auction must satisfy the payoff formula, and the payoff formula is used to reduce the problem into the design of winning rules. We then use a simple algorithm and the duality theory of linear programming to build a general solution of the problem.

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    Bibliographic Info

    Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 592.

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    Length: 36 pages
    Date of creation: May 2004
    Date of revision:
    Handle: RePEc:kyo:wpaper:592

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    Cited by:
    1. Ricardo Gonçalves, 2008. "A communication equilibrium in English auctions with discrete bidding," Working Papers de Economia (Economics Working Papers) 042008, Faculdade de Economia e Gestão, Universidade Católica Portuguesa (Porto).

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