The Chopstick Auction: A Study of the Exposure Problem in Multi-Unit Auctions

Abstract

Multi-unit auctions are sometimes plagued by the so-called exposure problem. In this paper, we analyze a simple game called the 'chopstick auction' in which bidders are confronted with the exposure problem. We do so both in theory and in a laboratory experiment. In theory, the chopstick auction has an efficient equilibrium and is revenue equivalent with the second-price sealed-bid auction in which the exposure problem is not present. In the experiment, however, we find that the 'chopstick' auction is less efficient than the second-price sealed-bid auction and that it yields more [the same] revenue if bidders are inexperienced [experienced].

Keywords: chopstick auction, exposure problem, laboratory experiment, second-price sealed-bid auction

JEL Classification: C9, D44