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Contents : Ascending Auctions Peter Cramton University of Maryland Every auctioneer knows that ascending auctions raise the most revenue. -- Professional Auctioneer (January 1994) Examples Ascending auction: FCC spectrum auctions most exceed industry revenue estimates C-block business plans initially at $20/person auction ends at $40/person Sealed-bid auction: Brazil cellular auction BellSouth high bid at $2.5 billion ($139/person) AT&T second highest at $1.5 billion Why ascending bid Who should get items and at what prices Price discovery process Open and transparent (legitimate) Reliable market prices (learning) Efficiency Single item: quite general strategically simple Many items: arbitrage and packaging possible Why ascending bid Revenue maximization Efficient auctions raise a lot of revenue May be optimal to award to those with highest values Devices to increase revenues often impractical Reserve prices and handicaps Efficiency looks even better in general model Endogenous participation Resale Revenue maximization Reduces winner s curse Milgrom & Weber (1982) Others willing to pay nearly as much Not raising is a confession of inferiority If its worth $x to them why isn t it worth that much to us Aren t we a good company Budget constraints can be relaxed Why ascending bid Privacy Don t reveal upper part of demand curve Implementation Less vulnerable to corruption (don t need secrecy) Avoid commitment problem (don t have to reject later bids) Why sealed bid Implementation Don t have to bring parties together Simple Difficult bid evaluation OK Procurement: Quality of job important Why sealed bid Ex ante asymmetries If know high valuer wins then no incentive to bid Almost common value (Klemperer 1997) Ascending bid may lead to low revenues because bids are strategic substitutes Typically not possible to level playing field Price preferences in government procurement Why sealed bid Risk aversion First-price better in IPV (Maskin & Riley 1985) But not true with affiliated values Aggressive bidding risky due to winner s curse Not true if bidder is agent Leaving money on the table is risky

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