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Overbidding and inefficiencies in multi-unit Vickrey auctions for normal goods

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  • Baisa, Brian

Abstract

I examine bid behavior in uniform-price auctions and multi-unit Vickrey auctions, without the standard quasilinearity restriction on bidder preferences. Instead of assuming quasilinearity, I assume that bidders have weakly positive wealth effects, i.e. the goods are normal goods. My setting nests quasilinearity, but also allows for budget constraints, financial constraints, and risk aversion. I show that without the quasilinearity restriction, truthful reporting is not a dominant strategy in the Vickrey auction. Instead, bidders truthfully demand for their first unit and weakly overreport their demand for later units. The incentive to overreport demand means that the Vickrey auction is generally inefficient. This mirrors the well-known demand reduction results in uniform-price auctions. Moreover, the efficiency ranking of the two auctions is ambiguous. In fact, there are cases where the uniform-price auction is Pareto efficient and the Vickrey auction is Pareto inefficient, even if only one bidder has non-quasilinear preferences.

Suggested Citation

  • Baisa, Brian, 2016. "Overbidding and inefficiencies in multi-unit Vickrey auctions for normal goods," Games and Economic Behavior, Elsevier, vol. 99(C), pages 23-35.
  • Handle: RePEc:eee:gamebe:v:99:y:2016:i:c:p:23-35
    DOI: 10.1016/j.geb.2016.07.002
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    Cited by:

    1. Yu Zhou & Shigehiro Serizawa, 2016. "Strategy-Proofness and Efficiency for Non-quasi-linear Common-Tiered-Object Preferences: Characterization of Minimum Price Rule," ISER Discussion Paper 0971, Institute of Social and Economic Research, Osaka University.
    2. Yu Zhou & Shigehiro Serizawa, 2019. "Minimum price equilibrium in the assignment market," ISER Discussion Paper 1047, Institute of Social and Economic Research, Osaka University.
    3. Baisa, Brian, 2020. "Efficient multi-unit auctions for normal goods," Theoretical Economics, Econometric Society, vol. 15(1), January.
    4. Tomoya Tajika & Tomoya Kazumura, 2019. "Non-manipulability of uniform price auctions with a large number of objects," International Journal of Game Theory, Springer;Game Theory Society, vol. 48(2), pages 543-569, June.
    5. Zhou, Yu & Serizawa, Shigehiro, 2018. "Strategy-proofness and efficiency for non-quasi-linear and common-tiered-object preferences: Characterization of minimum price rule," Games and Economic Behavior, Elsevier, vol. 109(C), pages 327-363.

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    More about this item

    Keywords

    Multi-unit auctions; Vickrey auctions; Uniform-price auctions; Wealth effects;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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