Economics at your fingertips  

Demand Reduction and Inefficiency in Multi-Unit Auctions

Lawrence M. Ausubel, Peter Cramton (), Marek Pycia, Marzena Rostek and Marek Weretka ()

Review of Economic Studies, 2014, vol. 81, issue 4, 1366-1400

Abstract: Auctions often involve the sale of many related goods: Treasury, spectrum, and electricity auctions are examples. In multi-unit auctions, bids for marginal units may affect payments for inframarginal units, giving rise to “demand reduction” and furthermore to incentives for shading bids differently across units. We establish that such differential bid shading results generically in ex post inefficient allocations in the uniform-price and pay-as-bid auctions. We also show that, in general, the efficiency and revenue rankings of the two formats are ambiguous. However, in settings with symmetric bidders, the pay-as-bid auction often outperforms. In particular, with diminishing marginal utility, symmetric information and linearity, it yields greater expected revenues. We explain the rankings through multi-unit effects, which have no counterparts in auctions with unit demands. We attribute the new incentives separately to multi-unit (but constant) marginal utility and to diminishing marginal utility. We also provide comparisons with the Vickrey auction.

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (60) Track citations by RSS feed

Downloads: (external link) (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Demand Reduction and Inefficiency in Multi-Unit Auctions (2002) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Review of Economic Studies is currently edited by Andrea PratEditor-Name: Bruno BiaisEditor-Name: Kjetil StoreslettenEditor-Name: Enrique Sentana

More articles in Review of Economic Studies from Oxford University Press
Bibliographic data for series maintained by Oxford University Press ().

Page updated 2020-01-21
Handle: RePEc:oup:restud:v:81:y:2014:i:4:p:1366-1400