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Inefficient rushes in auctions

Author

Listed:
  • Hernando-Veciana, Angel

    (Departamento de Economía, Universidad Carlos III)

  • Michelucci, Fabio

    (CERGE-EI)

Abstract

We analyze a setting common in privatizations, public tenders and takeovers in which the ex post efficient allocation, i.e. the first best, is not implementable. Our first main result is that the open ascending auction is not second best because it is prone to rushes, i.e. all active bidders quitting simultaneously, that undermine its efficiency. Our second main result is that the second best can be implemented with a two-round auction used in real-life privatizations. We also show how this result generalizes using a survival auction with a novel tie-breaking rule.

Suggested Citation

  • Hernando-Veciana, Angel & Michelucci, Fabio, 2018. "Inefficient rushes in auctions," Theoretical Economics, Econometric Society, vol. 13(1), January.
    • Handle: RePEc:the:publsh:2513
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    References listed on IDEAS

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    Cited by:

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    2. Gonçalves, Ricardo & Ray, Indrajit, 2017. "Partition Equilibria in a Japanese-English Auction with Discrete Bid Levels for the Wallet Game," CRETA Online Discussion Paper Series 34, Centre for Research in Economic Theory and its Applications CRETA.
    3. Wang, Dazhong & Xu, Xinyi, 2022. "Optimal equity auction with interdependent valuations," Journal of Mathematical Economics, Elsevier, vol. 100(C).
    4. Fabio Michelucci, 2022. "Promoting Entry and Efficiency via Reserve Prices," Games, MDPI, vol. 13(4), pages 1-7, June.

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    More about this item

    Keywords

    Privatization; efficiency; auctions; mechanism design; multi-round mechanisms;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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