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

Häfner, Samuel and Stewart, Alistair, Front-Running and Candle Auctions (August 23, 2021). Available at SSRN: https://ssrn.com/abstract=3846363 or http://dx.doi.org/10.2139/ssrn.3846363

Samuel Häfner (Contact Author)

University of St. Gallen ( email )

Varnbuelstr. 14
Saint Gallen, St. Gallen CH-9000
Switzerland

Alistair Stewart

Web3 Foundation ( email )

Zug
Switzerland

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