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Efficiency and equilibrium in discriminatory auctions with complementary items

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  • Geronikolaou, George

Abstract

Complementarities among auctioned items can lead to the exposure problem in which winners acquire fewer items than necessary to get positive utility. We model the exposure problem by means of a discriminatory auction format and we discuss the equilibrium and efficiency when multiple complementary items are auctioned in bundles, assuming that the seller has no value for the objects. We compute the Bayesian Nash equilibrium of the auction and we show that the risk of acquiring a bundle with insufficient number items forces auction participants to bid less aggressively. However, the auction remains efficient and total surplus is unaffected by the presence of the exposure problem. We show that there is a redistribution of utility from the “exposed bidder” to the rest of the winners in the sense that the former gets negative utility while the “real” winners get higher utility due to bidding less aggressively.

Suggested Citation

  • Geronikolaou, George, 2026. "Efficiency and equilibrium in discriminatory auctions with complementary items," Research in Economics, Elsevier, vol. 80(2).
    • Handle: RePEc:eee:reecon:v:80:y:2026:i:2:s1090944326000268
    DOI: 10.1016/j.rie.2026.101138
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    Keywords

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    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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