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Auctions: A New Method for Selling Objects with Bimodal Density Functions

Author

Listed:
  • Javier Castro

    (Complutense University
    Complutense University, Ciudad Universitaria)

  • Rosa Espínola

    (Complutense University
    Complutense University, Ciudad Universitaria)

  • Inmaculada Gutiérrez

    (Complutense University)

  • Daniel Gómez

    (Complutense University
    Complutense University, Ciudad Universitaria)

Abstract

In this paper we define a new auction, called the Draw auction. It is based on the implementation of a draw when a minimum price of sale is not reached. We find that a Bayesian Nash equilibrium is reached in the Draw auction when each player bids his true personal valuation of the object. Furthermore, we show that the expected profit for the seller in the Draw auction is greater than in second-price auctions, with or without minimum price of sale. We make this affirmation for objects whose valuation can be modeled as a bimodal density function in which the first mode is much greater than the second one. Regarding the Myerson auction, we show that the expected profit for the seller in the Draw auction is nearly as good as the expected profit in the optimal auction, with the difference that our method is much more simple to implement than Myerson’s one. All these results are shown by computational tests, for whose development we have defined an algorithm to calculate Myerson auction.

Suggested Citation

  • Javier Castro & Rosa Espínola & Inmaculada Gutiérrez & Daniel Gómez, 2023. "Auctions: A New Method for Selling Objects with Bimodal Density Functions," Computational Economics, Springer;Society for Computational Economics, vol. 61(4), pages 1707-1743, April.
    • Handle: RePEc:kap:compec:v:61:y:2023:i:4:d:10.1007_s10614-022-10259-1
    DOI: 10.1007/s10614-022-10259-1
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