First-Price Principle and the Failure of Revenue Equivalence

Byeong-hyeon Jeong and Marek Pycia

No 21116, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We show that first-price auctions can maximize a wide variety of objectives, including revenue, welfare, bidder surplus, and equality, while second-price (or ascending) auctions do not maximize revenue except in Myerson’s regular case. This stark contrast between canonical auction pricing rules qualifies the celebrated revenue equivalence. Furthermore, the optimality of first-price auctions does not hinge on any distributional assumptions, which enables us to analyze problems that are beyond the scope of Myersonian mechanism design. The resulting optimal auctions might employ not only reserve prices but also bid caps and other exclusions in the space of allowed bids. We also provide tools for the optimal design of first-price auctions and establish conditions for equilibrium existence and uniqueness.

Date: 2026-02
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