Auctions of Homogeneous Goods with Increasing Returns: Experimental Comparison of Alternative Dutch Auctions

20 Pages Posted: 26 Feb 2005

See all articles by Elena Katok

Elena Katok

University of Texas at Dallas

Alvin E. Roth

Dept. of Economics, Stanford University; National Bureau of Economic Research (NBER)

Abstract

Most business-to-business (B2B) auctions are used to transact large quantities of homogeneous goods, and therefore use multiunit mechanisms. In the B2B context, bidders often have increasing returns to scale, or synergies. We compare two commonly used auction formats for selling multiple homogeneous objects, both sometimes called Dutch auctions, in a set of value environments that include synergies and potentially subject bidders to the exposure and free-riding problems. We find that the descending-price auction, best known for its use in the Dutch flower auctions, is robust and performs well in a variety of environments, although there are some situations in which the ascending uniform-price auction similar to the one used by eBay better avoids the free-riding problem. We discuss the factors that influence each mechanism's performance in terms of the overall efficiency, the informational requirements, the seller's revenue, and the buyer's profit.

Keywords: multiunit auctions, procurement auctions, supply chain management, experimental economics

Suggested Citation

Katok, Elena and Roth, Alvin E., Auctions of Homogeneous Goods with Increasing Returns: Experimental Comparison of Alternative Dutch Auctions. Management Science, Vol. 50, No. 8, pp. 1044-1063, August 2004. Available at SSRN: https://ssrn.com/abstract=673404

Elena Katok (Contact Author)

University of Texas at Dallas ( email )

Jindal School of Management
800 W. Campbell Dr.
Richardson, TX 75080
United States

HOME PAGE: http://www.utdallas.edu/~ekatok/

Alvin E. Roth

Dept. of Economics, Stanford University ( email )

Landau Economics Building
579 Serra Mall
STANFORD, CA 94305-6072
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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