The Economics of Auctions
Revenue Equivalence and Real-World Deviations
Under ideal conditions, common auction formats give the seller the same expected revenue, but real-world features break the equivalence.
Which format earns the most?
Theorem
With risk-neutral bidders and independent values, English and sealed-bid formats yield the same average revenue.
Breakdowns
Risk aversion, collusion and limited bidder entry change results.
Design
Auction designers choose formats to fit the setting.
Practical
Encouraging more bidders is often the best way to raise revenue.
More bidders
Adding one more serious bidder can raise the price more than tweaking the rules.
Assuming the best format is always the same
Context matters.
Key takeaways
- Theoretically formats are equivalent.
- Real features break equivalence.
- Design should fit the situation.
- More bidders help.
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