The Inefficiency of First and Second Price Auctions in Dynamic Stochastic Environments

Dale Stahl

Netnomics, 2002, vol. 4, issue 1, 1-18

Abstract: Abstract First and second price auctions are optimal mechanisms for resource allocation in many situations and are used widely. However, unlike the static once-and-for-all situations for which auctions are efficient, in dynamic stochastic environments these standard auctions cannot necessarily support optimal allocations. The potential inefficiency of auctions is demonstrated by example. A computer server is modeled as a non-interruptible M/M/1 system, with heterogeneous users. The optimal allocation of jobs is derived, and it is shown that this allocation cannot be supported as either a first-price or a second-price auction equilibrium.

Keywords: auctions; efficiency; stochastic arrivals (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (2)

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DOI: 10.1023/A:1014959727397

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