Front-Running and Candle Auctions
30 Pages Posted: 18 May 2021 Last revised: 23 Aug 2021
Date Written: August 23, 2021
Abstract
This paper considers a dynamic single-good pay-as-bid auction where one bidder sees the other bids and can react to them before they are taken into account by the mechanism. In a two-bidder, IPV setting we show that a suitably chosen random ending time (a so-called candle auction) yields efficiency and is optimal in the class of auctions that always sell the good. Information leakages between bidders are pervasive in online environments. Candle auctions were widely used in the middle ages, but have since been largely forgotten.
Keywords: front-running, random ending time, auction
JEL Classification: D44, D82, G29, C72
Suggested Citation: Suggested Citation