Two Models of Bid-Taker Cheating in Vickrey Auctions
Vickrey (second-price sealed-bid) auctions have attractive theoretical properties but standard first-price sealed bidding is far more common. Explanations of the rarity of Vickrey auctions rely on concern about revelation of private information and on fear of cheating. The authors present two models of bid-taker cheating: a static, game-theoretic model and a reputation-based model of repeated auctions. In the first, an honest bid-taker will not choose a Vickrey auction. In the second, a trusted bid-taker who cheats when it pays eventually destroys his or her reputation and the trust on which the use of Vickrey auctions depends. Copyright 1995 by University of Chicago Press.