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Demand Reduction and Inefficiency in Multi-Unit Auctions

Lawrence M. Ausubel () and Peter Cramton ()
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Lawrence M. Ausubel: Economics Department, University of Maryland, http://www.econ.umd.edu

Papers of Peter Cramton from University of Maryland, Department of Economics - Peter Cramton

Abstract: Auctions typically involve the sale of many related goods. The FCC spectrum auctions and the Treasury debt auctions are examples. With conventional auction designs, large bidders have an incentive to reduce demand in order to pay less for their winnings. This incentive creates an inefficiency in multi-unit auctions. Large bidders reduce demand for additional units and so sometimes lose to smaller bidders with lower values. We demonstrate this inefficiency in several auction settings: flat demand and downward-sloping demand, independent private values and correlated values, and uniform pricing and pay-your-bid pricing. We also establish that the ranking of the uniform-price and pay-your-bid auctions is ambiguous. We show how a Vickrey auction avoids this inefficiency and how the Vickrey auction can be implemented with a simultaneous, ascending-bid design (Ausubel 1997). Bidding behavior in the FCC spectrum auctions illustrates the incentives for demand reduction and the associated inefficiency.

Keywords: Auctions; Multi-Unit Auctions; Spectrum Auctions; Treasury Auctions (search for similar items in EconPapers)
JEL-codes: D44 (search for similar items in EconPapers)
Pages: 31 pages
Date: 1995-11-08, Revised 2002-07-22
Note: Working Paper
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Related works:
Journal Article: Demand Reduction and Inefficiency in Multi-Unit Auctions (2014) Downloads
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