Simultaneous Pooled Auctions

Posted: 18 Jun 1997

See all articles by Flavio M. Menezes

Flavio M. Menezes

University of Queensland - School of Economics

Paulo Klinger Monteiro

Getulio Vargas Foundation (FGV) - EPGE

Multiple version iconThere are 2 versions of this paper

Date Written: November 96

Abstract

Suppose a seller wants to sell $k$ similar or identical objects and there are $n>k$ potential buyers. Suppose that buyers want only one object. (This is a reasonable assumption in the sale of condominiums or in the sale of government-owned residential units to low-income families). In this case, we suggest the use of a simultaneous auction that would work as follows. Players are asked to submit sealed bids for one object. The individual with the highest bid chooses an object first; the individual with the second highest bid chooses the next object; and this process continues until the individual with the $k^{th}$ highest bid receives the last object. Each individual pays the equivalent to his/her bid. When objects are identical, we show that the proposed auction generates the same revenue as a first-price sealed-bid sequential auction. When objects are perfectly correlated, there is no known solution for sequential auctions, whereas we can characterize bidding strategies for the proposed pooled auctions. Moreover, the pooled auction is optimal (for an appropriately defined reserve price) since it satisfies a straightforward generalization of the revelation principle (Myerson, 1981) to $k$ perfectly correlated objects. Thus, if the first-price sequential auction is optimal (for an appropriately defined reserve price) then it generates the same revenue as the pooled auctions. Otherwise, it generates less revenue. Therefore, the first-price sequential auction generates at most as much revenue than the pooled auction for identical and perfectly correlated objects. In addition, the pooled auction may be easier and cheaper to run, and bidders' strategies are simpler to compute since there are no interdependencies between sales as in the case of sequential auctions, i.e., the strategy space is smaller.

JEL Classification: D44

Suggested Citation

Menezes, Flavio M. and Monteiro, Paulo Klinger, Simultaneous Pooled Auctions (November 96). Available at SSRN: https://ssrn.com/abstract=8588

Flavio M. Menezes (Contact Author)

University of Queensland - School of Economics ( email )

Brisbane, QLD 4072
Australia

Paulo Klinger Monteiro

Getulio Vargas Foundation (FGV) - EPGE ( email )

sala 1103
Rio de Janeiro RJ, 22250-900
Brazil
+55 21 37995838 (Phone)
+55 21 25538821 (Fax)

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