Inefficient rushes in auctions

Angel Hernando-Veciana () and Fabio Michelucci

Theoretical Economics, 2018, vol. 13, issue 1

Abstract: We analyze a setting common in privatizations, public tenders and takeovers in which the ex post efficient allocation, i.e. the first best, is not implementable. Our first main result is that the open ascending auction is not second best because it is prone to rushes, i.e. all active bidders quitting simultaneously, that undermine its efficiency. Our second main result is that the second best can be implemented with a two-round auction used in real-life privatizations. We also show how this result generalizes using a survival auction with a novel tie-breaking rule.

Keywords: Privatization; efficiency; auctions; mechanism design; multi-round mechanisms (search for similar items in EconPapers)
JEL-codes: D44 D82 (search for similar items in EconPapers)
Date: 2018-01-31
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Citations: View citations in EconPapers (7)

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