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Why Are Vickrey Auctions Rare?

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  • Rothkopf, Michael H
  • Teisberg, Thomas J
  • Kahn, Edward P

Abstract

In 1961, William Vickrey showed that, in an independent private-values context with symmetric risk-neutral bidders, sealed second-price auctions have dominant truth-revealing equilibrium strategies; are perfectly efficient economically; and produce the same expected revenue for bid takers as equilibrium strategies in oral progressive auctions, Dutch auctions, or standard, first-price sealed bidding. Yet sealed second-price auctions seldom occur. The authors argue that fear of cheating and especially disincentives for bidders to follow truth-revealing strategies are important explanations. They model auctions in which third parties capture a fraction of the economic rent revealed by the second-price procedure. Copyright 1990 by University of Chicago Press.

Suggested Citation

  • Rothkopf, Michael H & Teisberg, Thomas J & Kahn, Edward P, 1990. "Why Are Vickrey Auctions Rare?," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 94-109, February.
  • Handle: RePEc:ucp:jpolec:v:98:y:1990:i:1:p:94-109
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    References listed on IDEAS

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    1. Feenstra, Robert C & Judd, Kenneth L, 1982. "Tariffs, Technology Transfer, and Welfare," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1142-1165, December.
    2. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    3. Flam, Harry & Helpman, Elhanan, 1987. "Industrial policy under monopolistic competition," Journal of International Economics, Elsevier, vol. 22(1-2), pages 79-102, February.
    4. Dollar, David, 1986. "Technological Innovations, Capital Mobility, and the Product Cycle inNorth-South Trade," American Economic Review, American Economic Association, vol. 76(1), pages 177-190, March.
    5. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 451-471, June.
    6. Judd, Kenneth L, 1985. "On the Performance of Patents," Econometrica, Econometric Society, vol. 53(3), pages 567-585, May.
    7. Richard Jensen & Marie Thursby, 1987. "A Decision Theoretic Model of Innovation, Technology Transfer, and Trade," Review of Economic Studies, Oxford University Press, vol. 54(4), pages 631-647.
    8. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
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