Low-Revenue Equilibria in Simultaneous Ascending-Bid Auctions

Authors:
Richard Engelbrecht-Wiggans;Charles M. Kahn
Affiliations:
Department of Business Administration, University of Illinois at Urbana-Champaign, Champaign, Illinois 61820;Department of Finance, University of Illinois at Urbana-Champaign, Champaign, Illinois 61820
Venue:
Management Science
Year:
2005

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Abstract

Low-revenue equilibria allow participants in an auction to obtain goods at prices lower than would prevail in a competitive market. These outcomes are generated as perfect equilibria of ascending-bid, multiunit auctions. We show that these equilibria are possible under mild conditions-conditions that are likely to prevail in many situations where auction formats have recently been adopted. We argue that these equilibria could explain the low revenues of some recent auctions, and discuss potential remedies to eliminate low-revenue equilibria.