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An Ascending Auction for Independent Values: Uniqueness and Robustness to Strategic Uncertainty

We consider an single object auction environment with interdependent valuations and a generalized Vickrey-Clark-Groves allocation mechanism that allocates the object almost efficiently in a strict ex post equilibrium. If there is a significant amount of interdependence, there are multiple rationalizable outcomes of this direct mechanism and any other mechanism that allocates the object almost efficiently. This is true whether the agents know about each others' payoff types or not. We consider an ascending price dynamic version of the generalized VCG mechanism. When there is complete information among the agents of their payoff types, we show that the almost efficient allocation is the unique backward induction (i.e., extensive form rationalizable) outcome of the auction, even when there are multiple rationalizable outcomes in the static version. This example illustrates the role that open auctions may play in obtaining efficient allocations by reducing strategic uncertainty.

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File URL: http://cowles.econ.yale.edu/P/cd/d16a/d1600.pdf
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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1600.

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Length: 14 pages
Date of creation: Jan 2007
Date of revision: Mar 2007
Publication status: Published in American Economic Review Papers and Proceedings (May 2007), 97(2): 125-130
Handle: RePEc:cwl:cwldpp:1600
Note: CFP 1207.
Contact details of provider: Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
Phone: (203) 432-3702
Fax: (203) 432-6167
Web page: http://cowles.econ.yale.edu/

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Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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  1. Moore, John & Repullo, Rafael, 1988. "Subgame Perfect Implementation," Econometrica, Econometric Society, vol. 56(5), pages 1191-1220, September.
  2. Pearce, David G, 1984. "Rationalizable Strategic Behavior and the Problem of Perfection," Econometrica, Econometric Society, vol. 52(4), pages 1029-50, July.
  3. Dirk Bergemann & Stephen Morris, 2006. "Robust Implementation: The Case of Direct Mechanisms"," Cowles Foundation Discussion Papers 1561R, Cowles Foundation for Research in Economics, Yale University, revised May 2007.
  4. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
  5. Gale, D., 1992. "Dynamic Coordiantion Games," Papers 13, Boston University - Department of Economics.
  6. P. Dasgupta & Eric Maskin, 1998. "Efficient Auctions," Harvard Institute of Economic Research Working Papers 1857, Harvard - Institute of Economic Research.
  7. Brandenburger, Adam & Dekel, Eddie, 1987. "Rationalizability and Correlated Equilibria," Econometrica, Econometric Society, vol. 55(6), pages 1391-1402, November.
  8. Abreu, Dilip & Sen, Arunava, 1990. "Subgame perfect implementation: A necessary and almost sufficient condition," Journal of Economic Theory, Elsevier, vol. 50(2), pages 285-299, April.
  9. Guillermo Caruana & Liran Einav, 2008. "A Theory of Endogenous Commitment," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 99-116.
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