An Ascending Auction for Interdependent Values: Uniqueness and Robustness to Strategic Uncertainty

15 Pages Posted: 27 Jan 2007

See all articles by Dirk Bergemann

Dirk Bergemann

Yale University - Cowles Foundation - Department of Economics; Yale University - Cowles Foundation

Stephen Morris

MIT

Date Written: March 2007

Abstract

We consider an single object auction environment with interdependent valuations and a generalized Vickrey-Clark-Groves allocation mechanism that allocates the object almost efficiently in a strict ex post equilibrium. If there is a significant amount of interdependence, there are multiple rationalizable outcomes of this direct mechanism and any other mechanism that allocates the object almost efficiently. This is true whether the agents know about each others' payoff types or not. We consider an ascending price dynamic version of the generalized VCG mechanism. When there is complete information among the agents of their payoff types, we show that the almost efficient allocation is the unique backward induction (i.e., extensive form rationalizable) outcome of the auction, even when there are multiple rationalizable outcomes in the static version. This example illustrates the role that open auctions may play in obtaining efficient allocations by reducing strategic uncertainty.

Keywords: Dynamic auction, Rationalizability, Extensive form, Uniqueness, Strategic uncertainty

JEL Classification: C79, D82

Suggested Citation

Bergemann, Dirk and Morris, Stephen Edward, An Ascending Auction for Interdependent Values: Uniqueness and Robustness to Strategic Uncertainty (March 2007). Cowles Foundation Discussion Paper No. 1600, Available at SSRN: https://ssrn.com/abstract=959444

Dirk Bergemann (Contact Author)

Yale University - Cowles Foundation - Department of Economics ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
203-432-3592 (Phone)
203-432-2128 (Fax)

HOME PAGE: http://www.econ.yale.edu/~dirk/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Stephen Edward Morris

MIT ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

HOME PAGE: http://https://economics.mit.edu/faculty/semorris