Fraction auctions: The tradeoff between efficiency and running time
This paper studies the sales of a single indivisible object where bidders have continuous valuations. In Grigorieva et al.  it was shown that, in this setting, query auctions necessarily allocate inefficiently in equilibrium. In this paper we propose a new sequential auction, called the c-fraction auction. We show the existence of an ex-post equilibrium, called bluff equilibrium, in which bidders behave truthfully except for particular constellations of observed bids at which it is optimal to pretend a slightly higher valuation. We show c-fraction auctions guarantee approximate efficiency at any desired level of accuracy, independent of the number of bidders, when bidders choose to play the bluff equilibrium. We discuss the running time and the efficiency in the bluff equilibrium. We show that by changing the parameter c of the auction we can trade off efficiency against running time.
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- Chwe, Michael Suk-Young, 1989. "The discrete bid first auction," Economics Letters, Elsevier, vol. 31(4), pages 303-306, December.
- William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
- Grigorieva,Elena & Herings,P. Jean-Jacques & Müller,Rudolf & Vermeulen,Dries, 2002.
"The private value single item bisection auction,"
051, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
- Engelbrecht-Wiggans, R. & Kahn, C.M., 1990.
"Protecting the Wnner: Second-price Versus Oral Auctions,"
University of Chicago - Economics Research Center
90-8, Chicago - Economics Research Center.
- Engelbrecht-Wiggans, Richard & Kahn, Charles M., 1991. "Protecting the winner : Second-price versus oral auctions," Economics Letters, Elsevier, vol. 35(3), pages 243-248, March.
- Grigorieva,Elena & Herings,Jean-Jacques & Müller,Rudolf & Vermeulen,Dries, 2004. "The communication complexity of private value single item auctions," Research Memorandum 052, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
- Grigorieva Elena & Herings P. Jean-Jacques & Müller Rudolf & Vermeulen Dries, 2009.
"Inefficiency of equilibria in query auctions with continuous valuations,"
023, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
- Grigorieva Elena & Herings P. Jean-Jacques & Müller Rudolf & Vermeulen Dries, 2006. "Inefficiency of equilibria in query auctions with continuous valuations," Research Memorandum 017, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
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