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Unpublished Paper
Demand Reduction and Inefficiency in Multi-Unit Auctions
Working Paper, University of Maryland (2002)
  • Peter Cramton, University of Maryland
  • Lawrence M. Ausubel, University of Maryland
Abstract

Auctions typically involve the sale of many related goods. Treasury, spectrum and electricity auctions are examples. In auctions where bidders pay the market-clearing price for items won, large bidders have an incentive to reduce demand in order to pay less for their winnings. This incentive creates an inefficiency in multiple-item auctions. Large bidders reduce demand for additional items and so sometimes lose to smaller bidders with lower values. We demonstrate this inefficiency in an auction model which allows interdependent values. We also establish that the ranking of the uniform-price and pay-as-bid auctions is ambiguous in both revenue and efficiency terms. Bidding behavior in spectrum auctions, electricity auctions, and experiments highlights the empirical importance of demand reduction.

Publication Date
July, 2002
Citation Information
Peter Cramton and Lawrence M. Ausubel. "Demand Reduction and Inefficiency in Multi-Unit Auctions" Working Paper, University of Maryland (2002)
Available at: http://works.bepress.com/cramton/49/