Advanced Search
MyIDEAS: Login to save this paper or follow this series

Demand Reduction and Inefficiency in Multi-Unit Auctions

Contents:

Author Info

Abstract

Auctions typically involve the sale of many related goods. The FCC spectrum auctions and the Treasury debt auctions are examples. With conventional auction designs, large bidders have an incentive to reduce demand in order to pay less for their winnings. This incentive creates an inefficiency in multi-unit auctions. Large bidders reduce demand for additional units and so sometimes lose to smaller bidders with lower values. We demonstrate this inefficiency in several auction settings: flat demand and downward-sloping demand, independent private values and correlated values, and uniform pricing and pay-your-bid pricing. We also establish that the ranking of the uniform-price and pay-your-bid auctions is ambiguous. We show how a Vickrey auction avoids this inefficiency and how the Vickrey auction can be implemented with a simultaneous, ascending-bid design (Ausubel 1997). Bidding behavior in the FCC spectrum auctions illustrates the incentives for demand reduction and the associated inefficiency.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cramton.umd.edu/papers1995-1999/98wp-demand-reduction.pdf
File Function: Full text
Download Restriction: no

Bibliographic Info

Paper provided by University of Maryland, Department of Economics - Peter Cramton in its series Papers of Peter Cramton with number 98wpdr.

as in new window
Length: 31 pages
Date of creation: 08 Nov 1995
Date of revision: 22 Jul 2002
Handle: RePEc:pcc:pccumd:98wpdr

Note: Working Paper
Contact details of provider:
Postal: Economics Department, University of Maryland, College Park, MD 20742-7211
Phone: (202) 318-0520
Fax: (202) 318-0520
Web page: http://www.cramton.umd.edu

Related research

Keywords: Auctions; Multi-Unit Auctions; Spectrum Auctions; Treasury Auctions;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Lawrence M. Ausubel & Peter Cramton, 1997. "Auctioning Securities," Papers of Peter Cramton 98wpas, University of Maryland, Department of Economics - Peter Cramton, revised Mar 1998.
  2. Jeremy Bulow & Paul Klemperer, 1994. "Auctions vs. Negotiations," NBER Working Papers 4608, National Bureau of Economic Research, Inc.
  3. Cramton, Peter C, 1995. "Money Out of Thin Air: The Nationwide Narrowband PCS Auction," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(2), pages 267-343, Summer.
  4. Back, Kerry & Zender, Jaime F, 1993. "Auctions of Divisible Goods: On the Rationale for the Treasury Experiment," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 733-64.
  5. Paul Milgrom, . "Putting Auction Theory to Work: The Simultaneous Ascending Auction," Working Papers 98002, Stanford University, Department of Economics.
  6. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
  7. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
  8. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
  9. Noussair, C.N., 1995. "Equilibria in a multi-object uniform price sealed bid auction with multi-unit demands," Open Access publications from Tilburg University urn:nbn:nl:ui:12-381122, Tilburg University.
  10. Bikhchandani, Sushil, 1999. "Auctions of Heterogeneous Objects," Games and Economic Behavior, Elsevier, vol. 26(2), pages 193-220, January.
  11. Anton, James J & Yao, Dennis A, 1992. "Coordination in Split Award Auctions," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 681-707, May.
  12. Peter Cramton, 1997. "The FCC Spectrum Auctions: An Early Assessment," Papers of Peter Cramton 97jemsfcc, University of Maryland, Department of Economics - Peter Cramton, revised 12 Jul 1998.
  13. Ian Ayres & Peter Cramton, 1996. "Deficit Reduction Through Diversity: How Affirmative Action at the FCC Increased Auction Competition," Papers of Peter Cramton 96slr, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  14. Richard Engelbrecht-Wiggans & Charles M. Kahn, 1998. "Multi-unit auctions with uniform prices," Economic Theory, Springer, vol. 12(2), pages 227-258.
  15. Bikhchandani, Sushil & Mamer, John W., 1997. "Competitive Equilibrium in an Exchange Economy with Indivisibilities," Journal of Economic Theory, Elsevier, vol. 74(2), pages 385-413, June.
  16. Levin, Dan & Smith, James L, 1996. "Optimal Reservation Prices in Auctions," Economic Journal, Royal Economic Society, vol. 106(438), pages 1271-83, September.
  17. Robert J. Weber, 1981. "Multiple-Object Auctions," Discussion Papers 496, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  18. Harris, Milton & Raviv, Artur, 1981. "Allocation Mechanisms and the Design of Auctions," Econometrica, Econometric Society, vol. 49(6), pages 1477-99, November.
  19. Harstad, Ronald M, 1990. "Alternative Common-Value Auction Procedures: Revenue Comparisons with Free Entry," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 421-29, April.
  20. 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.
  21. Wilson, Robert, 1979. "Auctions of Shares," The Quarterly Journal of Economics, MIT Press, vol. 93(4), pages 675-89, November.
  22. John G. Riley & William Samuelson, 1979. "Optimal Auctions," UCLA Economics Working Papers 152, UCLA Department of Economics.
  23. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  24. V.V. Chari & Robert J. Weber, 1992. "How the U.S. Treasury should auction its debt," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 3-12.
  25. John McMillan, 1994. "Selling Spectrum Rights," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 145-162, Summer.
  26. R. Preston McAfee & John McMillan, 1996. "Analyzing the Airwaves Auction," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 159-175, Winter.
  27. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
  28. Rothkopf, Michael H & Teisberg, Thomas J & Kahn, Edward P, 1990. "Why Are Vickrey Auctions Rare?," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 94-109, February.
  29. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  30. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law and Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  31. Harstad, Ronald M., 1993. "Auctions With Endogenous Bidder Participation," Discussion Paper Serie B 251, University of Bonn, Germany.
  32. Engelbrecht-Wiggans, Richard, 1988. "Revenue equivalence in multi-object auctions," Economics Letters, Elsevier, vol. 26(1), pages 15-19.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pcc:pccumd:98wpdr. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Cramton).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.