IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Optimality and Robustness of the English Auction

  • Giuseppe Lopomo

This paper attempts to reconcile the observed popularity of the English auction with the hypothesis that the trading mechanism is chosen with the objective of maximizing the seller's expected revenue. Under the assumptions of Milgrom and Weber's [20] 'general symmetric model,' I show the following three results. First, the 'augumented' English auction, in which the auctioneer sets the reserve price after all but one bidder have dropped out, generates at least as much seller's expected revenue as any ex post incentive-compatible (EPIC) and individually rational (EPIR) direct mechanisms. EPIC and EPIR direct mechanisms correspond to "belief-free" selling procedures. Thus this restriction of the set of feasible selling mechanisms aims at capturing a notion of robustness with respect to pertubations of the buyers' beliefs about their opponents' private information. Second, in the larger set of mechanisms, characterized by the property that 'losers do not pay,' ther! e exist auctions that generate a higher seller's expected revenue than the (augmented) English auction. Third, with two buyers, for a large class of signals' distributions, the augmented English auction maximizes the seller's expected revenue among all selling procedures where the loser does not pay and each buyer's payment is nondecreaseing in his own signal. With private values, these two conditions are satisfied by many equilibria in a class of bidding mechanisms, which includes approximations of both the Dutch auction and the English auction with discrete price increments. With more than two buyers, the English auction is optmal among all ex post efficient mechanisms where the losers do not pay and each buyer's payment is monotone in his signal.

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Paper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 95-03.

as
in new window

Length:
Date of creation: Oct 1995
Date of revision:
Handle: RePEc:ste:nystbu:95-03
Contact details of provider: Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-92, June.
  2. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
  3. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
  4. Steven A. Matthews, 1981. "Selling to Risk Averse Buyers with Unobservable Tastes," Discussion Papers 480S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Riley, John G, 1988. "Ex Post Information in Auctions," Review of Economic Studies, Wiley Blackwell, vol. 55(3), pages 409-29, July.
  6. Maskin, Eric S & Riley, John G, 1984. "Optimal Auctions with Risk Averse Buyers," Econometrica, Econometric Society, vol. 52(6), pages 1473-1518, November.
  7. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation for Research in Economics, Yale University.
  8. Green, Jerry R & Laffont, Jean-Jacques, 1987. "Posterior Implementability in a Two-Person Decision Problem," Econometrica, Econometric Society, vol. 55(1), pages 69-94, January.
  9. Vijay Krishna & John Morgan, 1994. "An Analysis of the War of Attrition and the All-Pay Auction," Game Theory and Information 9409002, EconWPA.
  10. Bulow, Jeremy & Roberts, John, 1989. "The Simple Economics of Optimal Auctions," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1060-90, October.
  11. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-57, November.
  12. Roger B. Myerson, 1978. "Optimal Auction Design," Discussion Papers 362, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Bikhchandani, Sushil & Riley, John G., 1991. "Equilibria in open common value auctions," Journal of Economic Theory, Elsevier, vol. 53(1), pages 101-130, February.
  14. Lopomo, Giuseppe, 1998. "The English Auction Is Optimal Among Simple Sequential Auctions," Journal of Economic Theory, Elsevier, vol. 82(1), pages 144-166, September.
  15. McAfee, R Preston & Reny, Philip J, 1992. "Correlated Information and Mechanism Design," Econometrica, Econometric Society, vol. 60(2), pages 395-421, March.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ste:nystbu:95-03. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Viveca Licata)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.