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Auctions in which Losers Set the Price

Author

Listed:
  • Claudio Mezzetti

  • Ilia Tsetlin

Abstract

We study auctions of a single asset among symmetric bidders with affiliated values. We show that the second-price auction minimizes revenue among all efficient auction mechanisms in which only the winner pays, and the price only depends on the losers’ bids. In particular, we show that the k-th price auction generates higher revenue than the second-price auction, for all k > 2. If rationing is allowed, with shares of the asset rationed among the t highest bidders, then the (t + 1)-st price auction yields the lowest revenue among all auctions with rationing in which only the winners pay and the unit price only depends on the losers’ bids. Finally, we compute bidding functions and revenue of the k-th price auction, with and without rationing, for an illustrative example much used in the experimental literature to study first-price, second-price and English auctions

Suggested Citation

  • Claudio Mezzetti & Ilia Tsetlin, 2006. "Auctions in which Losers Set the Price," Discussion Papers in Economics 06/8, Division of Economics, School of Business, University of Leicester, revised Mar 2007.
    • Handle: RePEc:lec:leecon:06/8
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    Cited by:

    1. is not listed on IDEAS
    2. Olga Gorelkina, 2014. "Bidder Collusion and the Auction with Target Bids," Discussion Paper Series of the Max Planck Institute for Behavioral Economics 2014_10, Max Planck Institute for Behavioral Economics.
    3. Mares Vlad & Shor Mikhael, 2012. "On the Competitive Effects of Bidding Syndicates," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-33, September.

    More about this item

    Keywords

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    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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