Auctions in Which Losers Set the Price

28 Pages Posted: 21 Nov 2007

See all articles by Claudio Mezzetti

Claudio Mezzetti

University of Leicester - Department of Economics

Ilia Tsetlin

INSEAD

Date Written: March 2007

Abstract

We study auctions of a single asset among symmetric bidders with affiliated values. We show that the second-price auction minimizes revenue among all efficient auction mechanisms in which only the winner pays, and the price only depends on the losers' bids. In particular, we show that the k-th price auction generates higher revenue than the second-price auction, for all k > 2. If rationing is allowed, with shares of the asset rationed among the t highest bidders, then the (t + 1)-st price auction yields the lowest revenue among all auctions with rationing in which only the winners pay and the unit price only depends on the losers' bids. Finally, we compute bidding functions and revenue of the k-th price auction, with and without rationing, for an illustrative example much used in the experimental literature to study first-price, second-price and English auctions.

Keywords: Auctions, Second-price Auction, English Auction, k-th Price Auction, Affiliated

Suggested Citation

Mezzetti, Claudio and Tsetlin, Ilia, Auctions in Which Losers Set the Price (March 2007). INSEAD Business School Research Paper No. 2007/16/DS, Available at SSRN: https://ssrn.com/abstract=1031399 or http://dx.doi.org/10.2139/ssrn.1031399

Claudio Mezzetti (Contact Author)

University of Leicester - Department of Economics ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom

Ilia Tsetlin

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

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