Inefficient Rushes in Auctions

We analyze a setting common in privatizations, public tenders, and takeovers in which the ex post efficient allocation, i.e., the first best, is not implementable. Our first main result is that the open ascending auction is not second best because it is prone to rushes, i.e., all active bidders quitting simultaneously, that undermine its efficiency. Our second main result is that the second best can be implemented with a two‐round auction used in real‐life privatizations. We also show how this result generalizes using a survival auction with a novel tie‐breaking rule

Multidimensional Bargaining and Posted Prices

A seller and a buyer bargain over the quantities and prices of multiple goods. Both agents have private information about their preferences. Utility is quasilinear in money. We show that a deterministic mechanism satisfies (i) dominant-strategy incentive compatibility, (ii) ex-post individual rationality and (iii) ex-post budget balance if and only if it is a posted-price mechanism. A similar, more general result holds if (iii) is replaced by ex-post collusion-proofness and a no-free lunch condition. We provide a unified proof of both findings via the property of non-bossiness

Risky procurement with an insider bidder

Procurement auctions carry substantial risk when the value of the project is highly uncertain and known only to insiders. This paper reports the results from a series of experiments comparing the performance of three auction formats in such complex and risky settings. In the experiment, every bidder knows the private value for the project but only a single insider bidder knows the common-value part. In addition to the standard second-price and English auctions we test the “qualifying auction,” a two-stage format commonly used in the sale of complex and risky assets. The qualifying auction has a fully “revealing” equilibrium that implements the revenue-maximizing outcome but it also has an uninformative “babbling” equilibrium in which bidders place arbitrarily high bids in the first stage. In the experiments, the latter equilibrium has more drawing power, which causes the qualifying auction to perform worse than the English auction and only slightly better than a sealed-bid second-price auction. Compared to the two other formats, the English auction is roughly 40% more efficient, yields 50% more revenues, avoids windfall profits for the insider, while protecting uninformed bidders from losses