Is there an auction that lets the buyer spend the least amount possible while ensuring the good goes to the person who values it the most?
I know the second-price sealed-bid auction (Vickery) is already a good start, but I was wondering if we could do better?
Thank you 🙂
Is there an auction that allows the buyer to pay least amount possible?
byu/FloppyMonkey07 inAskEconomics
Posted by FloppyMonkey07
1 Comment
Not generally, depending on what you mean.
The Revenue Equivalence Theorem says that every mechanism that implements the same outcome (i.e., allocates the good to the same bidder given the bidders’ valuations) generates the same expected revenue for the auctioneer.
One answer is that you can have the winning bidder pay less if you’re willing to have the other bidders pay more. For instance, consider the all-pay auction. In the all-pay auction, bidders pay their bid regardless of whether they win. Everyone underbids, so the winner ends up paying less but everyone else pays more and, in expectation, the total amount paid is the same as the Vickrey auction. But I assume this is not what you mean.
The Revenue Equivalence Theorem says that two auction formats produce the same revenue *as long as they generate the same utility for bidders who end up with the lowest possible valuation*. So one way you can get the buyer to pay less is if you make **every** bidder better off. For instance, if you just subsidize every bidder by a flat amount regardless of their bid. But I assume this is not what you mean, either.
So if you are not satisfied with either of those workarounds, the answer is “no.”