Auctions in which Losers Set the Price

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Auctions in which Losers Set the Price

Author Info

Mezzetti, Claudio (Department of Economics, University of Warwick)
Tsetlin, Ilia (INSEAD, Singaport)

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Claudio Mezzetti

Abstract

We study auctions of a single asset among symmetric bidders with affiliated values. We show that the second-price auction minimizes revenue among all efficient auction mechanisms in which only the winner pays, and the price only depends on the losers' bids. 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 losers' 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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Publisher Info
Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 845.

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Length: 20 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:wrk:warwec:845

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Other versions of this item:

Article
- Mezzetti, Claudio & Tsetlin, Ilia, 2009. "Auctions in which losers set the price," Games and Economic Behavior, Elsevier, vol. 66(2), pages 855-864, July. [Downloadable!] (restricted)
Paper
- Claudio Mezzetti & Ilia Tsetlin, 2006. "Auctions in which Losers Set the Price," Discussion Papers in Economics 06/8, Department of Economics, University of Leicester, revised Mar 2007. [Downloadable!]

Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-03-08 (All new papers)
NEP-CTA-2008-03-08 (Contract Theory & Applications)
NEP-GTH-2008-03-08 (Game Theory)
NEP-MKT-2008-03-08 (Marketing)

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.:

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. [Downloadable!] (restricted)
Paul Klemperer, 2004. "Auctions: Theory and Practice," Economics Papers 2004-W09, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
Other versions:
- Paul Klemperer, 2004. "Auctions: Theory and Practice," Online economics textbooks, SUNY-Oswego, Department of Economics, number auction1, March. [Downloadable!]
E. Wolfstetter, . "Third- And Higher- Price Auctions," Sonderforschungsbereich 373 1996-3, Humboldt Universitaet Berlin.
Giuseppe Lopomo, 1995. "Optimality and Robustness of the English Auction," Working Papers 95-03, New York University, Leonard N. Stern School of Business, Department of Economics.
Other versions:
- Giuseppe Lopomo, 2004. "Optimality and Robustness of the English Auction," Levine's Bibliography 122247000000000391, UCLA Department of Economics. [Downloadable!]
- Lopomo, Giuseppe, 2001. "Optimality and Robustness of the English Auction," Games and Economic Behavior, Elsevier, vol. 36(2), pages 219-240, August. [Downloadable!] (restricted)
Dirk Bergemann & Stephen Morris, 2005. "Robust Mechanism Design," Econometrica, Econometric Society, vol. 73(6), pages 1771-1813, November. [Downloadable!] (restricted)
Other versions:
- Dirk Bergemann & Stephen Morris, 2003. "Robust Mechanism Design," Cowles Foundation Discussion Papers 1421, Cowles Foundation, Yale University. [Downloadable!]
- Dirk Bergemann & Stephen Morris, 2005. "Robust Mechanism Design," NajEcon Working Paper Reviews 666156000000000593, www.najecon.org. [Downloadable!]
- Stephen Morris & Dirk Bergemann, 2004. "Robust Mechanism Design," Yale School of Management Working Papers ysm380, Yale School of Management. [Downloadable!]
- Dirk Bergemann & Stephen Morris, 2003. "Robust Mechanism Design," Cowles Foundation Discussion Papers 1421R, Cowles Foundation, Yale University, revised Apr 2004. [Downloadable!]
- Dirk Bergemann & Stephen Morris, 2003. "Robust Mechanism Design," Levine's Bibliography 666156000000000035, UCLA Department of Economics. [Downloadable!]
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. [Downloadable!] (restricted)
Other versions:
- Vijay Krishna & John Morgan, 1994. "An Analysis of the War of Attrition and the All-Pay Auction," Game Theory and Information 9409002, EconWPA. [Downloadable!]
Jeremy Bulow & Paul Klemperer, 2002. "Prices and the Winner's Curse," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 1-21, Spring.
Other versions:
- Jeremy Bulow & Paul Klemperer, 1999. "Prices and the Winner's Curse," Game Theory and Information 9904003, EconWPA. [Downloadable!]
Kagel, John H & Harstad, Ronald M & Levin, Dan, 1987. "Information Impact and Allocation Rules in Auctions with Affiliated Private Values: A Laboratory Study," Econometrica, Econometric Society, vol. 55(6), pages 1275-1304, November. [Downloadable!] (restricted)
Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September. [Downloadable!] (restricted)
Other versions:
- 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. [Downloadable!]

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