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The Product-Mix Auction: A New Auction Design for Differentiated Goods

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  • Paul Klemperer

Abstract

I describe a new static (sealed-bid) auction for differentiated goods--the "Product-Mix Auction." Bidders bid on multiple assets simultaneously, and bid-takers choose supply functions across assets. The auction yields greater efficiency, revenue, information, and trade than running multiple separate auctions. It is also often simpler to use and understand, and less vulnerable to collusion, than a simultaneous multiple round auction. I designed it after the 2007 Northern Rock bank run to help the Bank of England fight the credit crunch; in 2008 the U.S. Treasury planned using a related design to buy "toxic assets"; it may be used to purchase electricity. (JEL: D44, E58) (c) 2010 by the European Economic Association.

Suggested Citation

  • Paul Klemperer, 2010. "The Product-Mix Auction: A New Auction Design for Differentiated Goods," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 526-536, 04-05.
  • Handle: RePEc:tpr:jeurec:v:8:y:2010:i:2-3:p:526-536
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    References listed on IDEAS

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    1. Martin L. Weitzman, 1974. "Prices vs. Quantities," Review of Economic Studies, Oxford University Press, vol. 41(4), pages 477-491.
    2. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521536721, March.
    3. Crawford, Vincent P & Knoer, Elsie Marie, 1981. "Job Matching with Heterogeneous Firms and Workers," Econometrica, Econometric Society, vol. 49(2), pages 437-450, March.
    4. Paul Klemperer, 2004. "Auctions: Theory and Practice," Online economics textbooks, SUNY-Oswego, Department of Economics, number auction1.
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    Cited by:

    1. Xavier Vives, 2011. "Strategic Supply Function Competition With Private Information," Econometrica, Econometric Society, vol. 79(6), pages 1919-1966, November.
    2. Ingebretsen Carlson, Jim, 2015. "An Approximate Auction," Working Papers 2015:19, Lund University, Department of Economics.
    3. Koulischer, François & Struyven, Daan, 2014. "Central bank liquidity provision and collateral quality," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 113-130.
    4. Aytek Erdil & Paul Klemperer, 2010. "A New Payment Rule for Core-Selecting Package Auctions," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 537-547, 04-05.
    5. Regina Betz & Ben Greiner & Sascha Schweitzer & Stefan Seifert, 2014. "Auction Format and Auction Sequence in Multi-Item Multi-Unit Auctions - An experimental study," Discussion Papers 2014-31, School of Economics, The University of New South Wales.
    6. Ingebretsen Carlson, Jim, 2016. "An Auction with Approximated Bidder Preferences - When an Auction has to be Quick," Working Papers 2016:12, Lund University, Department of Economics.
    7. Thomas Greve & Michael G. Pollitt, 2013. "Determining the optimal length of regulatory guarantee: A Length-of-Contract Auction," Cambridge Working Papers in Economics 1348, Faculty of Economics, University of Cambridge.

    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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