Working Paper: CEPR ID: DP15656
Authors: Marek Pycia; Kyle Woodward
Abstract: Pay-as-bid (or discriminatory) auctions are frequently used to sell homogenous goods such as treasury securities and commodities. We prove the uniqueness of their pure-strategy Bayesian Nash equilibrium and establish a tractable representation of equilibrium bids. Building on these results we analyze the optimal design of pay-as- bid auctions, as well as uniform-price auctions (the main alternative auction format). We show that supply transparency and full disclosure are optimal in pay-as-bid, though not necessarily in uniform-price; pay-as-bid is revenue dominant and might be welfare dominant; and we provide an explanation for the revenue equivalence observed in empirical work.
Keywords: auctions; pay-as-bid; uniform-price; revenue equivalence
JEL Codes: D44; D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| auction format (pay-as-bid) (D44) | unique pure-strategy Bayesian Nash equilibrium (C73) |
| supply transparency and full disclosure (G38) | seller revenue (L85) |
| auction format (pay-as-bid) (D44) | revenue dominance (H27) |
| auction format (pay-as-bid) (D44) | welfare dominance (D69) |
| auction format design (D44) | economic outcomes (F61) |
| pay-as-bid auctions (D44) | uniform-price auctions (D44) |