The effectiveness of English auctions

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Abstract

We study the performance of the English auction under different assumptions about the seller's degree of "Bayesian sophistication." We define the effectiveness of an auction as the ratio between the expected revenue it generates for the seller and the expected valuation of the object to the bidder with the highest valuation (total surplus). We identify tight lower bounds on the effectiveness of the English auction for general private-values environments, and for private-values environments where bidders' valuations are non-negatively correlated. For example, when the seller faces 12 bidders who the seller believes have non-negatively correlated valuations whose expectations are at least as high as 60% of the maximal possible valuation, an English auction with no reserve price generates an expected price that is more than 80% of the value of the object to the bidder with the highest valuation.

Original languageEnglish
Pages (from-to)214-238
Number of pages25
JournalGames and Economic Behavior
Volume43
Issue number2
DOIs
StatePublished - May 2003
Externally publishedYes

Keywords

  • Effectiveness
  • English auction
  • Private values model
  • Second-price auction
  • Worst-case

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