Demand Reduction and Inefficiency in Multi-Unit Auctions

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

The 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 (145)

Downloads: (external link)
http://hdl.handle.net/10.1093/restud/rdu023 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Demand Reduction and Inefficiency in Multi-Unit Auctions (2002)
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: https://EconPapers.repec.org/RePEc:oup:restud:v:81:y:2014:i:4:p:1366-1400

Access Statistics for this article

The Review of Economic Studies is currently edited by Thomas Chaney, Xavier d’Haultfoeuille, Andrea Galeotti, Bård Harstad, Nir Jaimovich, Katrine Loken, Elias Papaioannou, Vincent Sterk and Noam Yuchtman

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