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Simultaneous Pooled Auctions

Listed author(s):
  • Flavio Menezes

    (Australian National University)

  • Paulo Klinger Monteiro


Suppose a seller wants to sell $k$ similar or identical objects and there are $n>k$ potential buyers. Suppose that buyers want only one object. (This is a reasonable assumption in the sale of condominiums or in the sale of government-owned residential units to low-income families). In this case, we suggest the use of a simultaneous auction that would work as follows. Players are asked to submit sealed bids for one object. The individual with the highest bid chooses an object first; the individual with the second highest bid chooses the next object; and this process continues until the individual with the $k^{th}$ highest bid receives the last object. Each individual pays the equivalent to his/her bid. When objects are identical, we show that the proposed auction generates the same revenue as a first-price sealed-bid sequential auction. When objects are perfectly correlated, there is no known solution for sequential auctions, whereas we can characterize bidding strategies for the proposed pooled auctions. Moreover, the pooled auction is optimal since it satisfies a straightforward generalization of the revelation principle (Myerson, 1981) to $k$ perfectly correlated objects. Thus, if the first-price sequential auction is optimal then it generates the same revenue as the pooled auctions. Otherwise, it generates less revenue. Therefore, the first- price sequential auction generates at most as much revenue than the pooled auction for identical and perfectly correlated objects. In addition, the pooled auction may be easier and cheaper to run, and bidders' strategies are simpler to compute since there are no interdependencies between sales as in the case of sequential auctions, i.e., the strategy space is smaller.

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Paper provided by EconWPA in its series Microeconomics with number 9611001.

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Length: 17 pages
Date of creation: 19 Nov 1996
Handle: RePEc:wpa:wuwpmi:9611001
Note: Type of Document - Latex; prepared on PC-TEX; to print on HP laserjet; pages: 17 ; figures: none
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  1. Flavio Menezes & Paulo Monteiro, 1997. "Sequential asymmetric auctions with endogenous participation," Theory and Decision, Springer, vol. 43(2), pages 187-202, September.
  2. Gale Ian L. & Hausch Donald B., 1994. "Bottom-Fishing and Declining Prices in Sequential Auctions," Games and Economic Behavior, Elsevier, vol. 7(3), pages 318-331, November.
  3. Mayer Christopher J., 1995. "A Model of Negotiated Sales Applied to Real Estate Auctions," Journal of Urban Economics, Elsevier, vol. 38(1), pages 1-22, July.
  4. Gale, I. & Hausch, D., 1992. "Bottom-Fishing and Declining Prices in Sequential Auctions," Working papers 9215, Wisconsin Madison - Social Systems.
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