Efficient Ascending Auction Aer

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An Efcient Ascending-Bid Auction for Multiple Objects

By LAWRENCE M. AUSUBEL *

When bidders exhibit multi-unit demands, standard auction methods generally yield inefcient outcomes. This article proposes a new ascending-bid auction for homo-geneous goods, such as Treasury bills or telecommunications spectrum. The auc-tioneer announces a price and bidders respond with quantities. Items are awarded at the current price whenever they are clinched, and the price is incremented until the market clears. With private values, this (dynamic) auction yields the sameoutcome as the (sealed-bid) Vickrey auction, but has advantages of simplicity and privacy preservation. With interdependent values, this auction may retain efciency,whereas the Vickrey auction suffers from a generalized Winners Curse. ( JEL D44)

The auctions literature has provided us withtwo fundamental prescriptions guiding effectiveauction design. First, an auction should be struc-tured so that the price paid by a playerconditional on winningis as independent aspossible of her own bids (William Vickrey,1961). Ideally, the winners price should de-pend solely on opposing participants bidsasin the sealed-bid, second-price auctionso thateach participant has full incentive to revealtruthfully her value for the good. Second, anauction should be structured in an open fashion

that maximizes the information made availableto each participant at the time she places herbids (Paul R. Milgrom and Robert J. Weber,1982a). When bidders signals are afliated andthere is a common-value component to valua-tion, an open ascending-bid format may induceparticipants to bid more aggressively (on aver-age) than in a sealed-bid format, since partici-pants can infer greater information about theiropponents signals at the time they place theirnal bids.

In single-item environments, these dual pre-scriptions are often taken to imply the desirabil-ity of the English auction and to explain itsprevalence (see, for example, the excellent sur-veys of R. Preston McAfee and John McMillan,1987; Milgrom, 1987). For auctions where bid-ders acquire multiple items, however, no oneappears to have combined these two broad in-sights and taken them to their logical conclu-sion. The current article does precisely that: Ipropose a new ascending-bid auction format

for multiple objects that literally takes heedof the two traditional prescriptions for auctiondesign. 1

* Department of Economics, University of Maryland,Tydings Hall, Room 3105, College Park, MD 20742 (e-mail: [email protected]; http://www.ausubel.com). Iam extraordinarily grateful to Kathleen Ausubel and PeterCramton for numerous helpful discussions. I also wish tothank Theodore Groves, Ronald Harstad, John Ledyard,Eric Maskin, Preston McAfee, Paul Milgrom, Philip Reny,Vernon Smith, Robert Wilson, and four anonymous refereesfor useful feedback, comments, suggestions, and explana-tions at various stages in the preparation of this article. Iappreciate valuable comments from participants and discus-sants at the Princeton University Conference on the Spec-trum Auctions, the Universitat Pompeu Fabra Conferenceon Auctions, the North American meetings of the Econo-metric Society, the American Economic Association meet-ings, the Utah Winter Finance Conference, and the NSFDecentralization Conference, as well as from seminar par-ticipants at numerous universities. Intellectual Property Dis-closure: The auction design introduced in this article may besubject to issued or pending patents, in particular, US PatentNo. 6,026,383 and US Patent Application No. 09/397,008.Upon request, the author will grant a royalty-free license tothe referenced properties for noncommercial research onthis auction design.

This article is dedicated to William Vickrey (19141996).

1 Some readers may feel that my opening paragraphsoverstate the case made in the literature for dynamic auctionformats or, perhaps, the case for using auction mechanismsat all. Indeed, the revenue rankings favoring dynamic auc-tions depend critically on several strong assumptions, in-cluding afliated random variables, symmetry, and risk neutrality. Moreover, when buyers have strongly interde-pendent values, some may consider auctions to be poorways to generate revenues and may argue that other proce-

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The starting point for understanding the de-sign proposed herein is to consider the uniform-price auction. Recall that the classic Englishauction for a single object can be sensibly col-lapsed down to a sealed-bid, second-price auc-tion. Analogously, most existing ascending-bidauction designs for identical objects can be sen-sibly collapsed down to the uniform-price auc-tion, in which bidders simultaneously submitbids comprising demand curves, the auctioneerdetermines the clearing price, and all bids ex-ceeding the clearing price are deemed winningbids at the clearing price. Unfortunately, theuniform-price auction possesses a continuum of equilibria yielding less than the competitiveprice (Robert Wilson, 1979; Kerry Back and

Jaime F. Zender, 1993) and, indeed, with pri-vate information, every equilibrium of theuniform-price auction yields inefcient out-comes with positive probability (Ausubel andPeter Cramton, 2002). The reason for inef-ciency is that uniform pricing creates strongincentives for demand reduction: a bidderwill bid less than her value for a marginal unit,in order to depress the price that she pays forinframarginal units.

More extreme results are possible if the auc-tion is explicitly sequential. Ausubel and JesseA. Schwartz (1999) show that a two-bidder,alternating-bid version of the uniform-price as-cending auction possesses a unique subgameperfect equilibrium. The rst bidder bids theopening price on slightly more than half theunits, the second bidder bids the next possibleprice on the remaining units, and the game ends.Thus, the allocation need not bear any connec-tion to an efcient outcome, and the price (one

bid increment above the reserve price) need notbear any connection to a competitive price.While this prediction is admittedly extreme, itwas almost perfectly borne out, empirically, inan October 1999 German spectrum auction. 2

By way of contrast, the (multi-unit) Vickreyauction is an effective static design when bid-ders with pure private values have tastes forconsuming more than one object. Again, bid-ders submit sealed bids comprising demandcurves, the auctioneer determines the clearingprice, and all bids exceeding the clearing priceare deemed winning bids. The price paid foreach unit won, however, is neither the amountof the bid nor the clearing price, but the oppor-tunity cost of assigning this unit to the winning

bidder. For discrete objects, if bidder i is to beawarded k objects, then she is charged theamount of the k th highest rejected bid (otherthan her own) for her rst unit, the ( k 1)st

highest rejected bid (other than her own) for hersecond unit, ... , and the highest rejected bid(other than her own) for her k th unit. For M divisible objects, Figure 1 depicts the outcome: xi( p) denotes bidder is demand curve, M x i( p) denotes the residual supply after sub-tracting out the demands of all other bidders, p*denotes the market-clearing price if all biddersparticipate in the auction, and p* i denotes themarket-clearing price in the absence of bidder i.The Vickrey auction awards a quantity of xi( p*)to bidder i, and requires a payment equal to thearea of the shaded region in Figure 1. Thus,each participants payment (conditional uponwinning a given quantity) is independent of herown bids, embodying the rst prescription of auction design.

dures (such as posted prices) may raise higher revenues.Nevertheless, in recent years, when economists and gametheorists have been called upon to recommend selling pro-cedures, most notably in cases of governments offeringtelecommunications spectrum, they have generally advo-cated using dynamic auctions. At the same time, with therise in recent years of online bazaars such as eBay, casualempiricism suggests that dynamic auctions have gainedmarket share at the expense of sealed-bid auctions, and thatauction mechanisms have gained market share at the ex-pense of non-auction mechanisms. Finally, the potentialadvantages of posted prices may be obtained in the auctionprocedure proposed in the current article by simply append-ing a reserve price or a supply curve to the otherwiseefcient auction.

2 As recounted by Philippe Jehiel and Benny Moldovanu(2000), ten licenses for virtually homogeneous spectrumwere offered to the four German mobile phone incumbents.In the rst round of bidding, Mannesmann placed high bidsof DM 36,360,000 per MHz on each of licenses 1 through5 and high bids of DM 40,000,000 per MHz on each of licenses 6 through 10. In the second round of bidding,T-Mobil raised Mannesmann on licenses 1 through 5 bybidding a price of DM 40,010,000 (the minimum bid incre-ment was 10 percent), while letting Mannesmann maintainthe high bids on licenses 6 through 10. In the third round of bidding, no new bids were entered, and so the auction endedin two rounds with the two largest incumbents dividing themarket almost equally at an apparently uncompetitive lowprice.

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There would appear to be signicant advan-tages, however, if a multi-unit auction formatcould also reect the second prescription of auction design. The principal questions underconsideration may thus be stated:

Can the analogy between the English auc-tion and the second-price auction be completed for multiple units? In particular,when bidders have pure private values,does there exist a simple ascending-bid auction for homogeneous goods whosestatic representation is the (multi-unit)Vickrey auction? And, to the extent that the analogy can be completed, will theascending-bid auction outperform thesealed-bid auction in interdependent values environments generalizing the Milgrom-Weber symmetric model?

This article provides a substantial afrma-

tive answer. A new ascending-bid auction isproposed, which operates as follows. The auc-tioneer calls a price, bidders respond with quan-tities, and the process iterates with increasingprices until demand is no greater than supply. Abidders payment does not , however, equal hernal quantity times the nal price. Rather, ateach price p, the auctioneer determines whether,for any bidder i, the aggregate demand x i( p) of bidder is rivals is less than the supply M . If so,the difference is deemed clinched, and anygoods newly clinched are awarded to bidder i atprice p.

For example, suppose that two identical objects are available and that three biddersA, B,and Cinitially bid for quantities of 2, 1, and 1,respectively. Suppose that the bidders continueto bid these quantities until price p, when Bid-der C reduces from 1 unit to 0, dropping out of the auction. While there continues to be excessdemand, Bidder As opponents now collectivelydemand only one unit, while two units are avail-able. Bidder A therefore clinches one unit atprice p, and the auction (for the remaining object) continues.

In the new auction design, a bidders pay-ment for inframarginal units is effectively de-coupled from her bids for marginal units,eliminating any incentive for demand reduction.

Consequently, with private values, sincere bid-ding by every bidder is an equilibrium, yieldingthe same efcient outcome as the Vickrey auc-tion. Moreover, under incomplete informationand a full support assumption, sincere biddingis the unique outcome of iterated weak domi-nance, just as sincere bidding is the uniqueoutcome of weak dominance in the Vickreyauction. Thus, the new ascending-bid auctiondesign has an analogous relationship to the(multi-unit) Vickrey auction that the Englishauction has to the second-price auction.

Furthermore, consider a symmetric setting inwhich bidders have constant marginal valuesthat are interdependent in the sense that eachbidders value depends on her rivals signals.(While restrictive, this model strictly general-izes the classic Milgrom and Weber frame-work.) Let M denote the supply of objects andlet i denote the number of objects desired bybidder i. If i and M / is an integer,efcient equilibria exist in both the static anddynamic auctions, but the sellers expected rev-

enues are greater in the dynamic auction, repli-cating Milgrom and Webers point. For theremaining parameter values, the new (dynamic)auction format outperforms the (static) Vickreyauction on efciency: efcient equilibria existin the dynamic auction, but are not present inthe static auction.

Simplicity or transparency to bidders shouldbe viewed as one important attribute and ad-vantage of the proposed auction. While thesingle-item Vickrey auction is well known, themulti-unit version proposed by Vickrey in thesame 1961 article remains relatively obscure

FIGURE 1. PAYMENT RULE IN THE VICKREY AUCTION

1454 THE AMERICAN ECONOMIC REVIEW DECEMBER 2004
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even among economists, and is hardly ever ad-vocated for real-world use. One reason seems tobe that many believe it is too complicated forpractitioners to understand, even in the privatevalues environment where the traditional theorynds no informational advantages to a dynamicauction over a static auction. 3 By contrast, theascending-bid design proposed here seems sim-ple enough to be understood by any acionadoof baseball pennant races. This prediction ap-pears to be borne out in the early experimentalevidence (see Section VI).

Privacy preservation of the winning bid-ders values is another attribute and advan-tage of the new ascending-bid auction. Notingthat English auctions are quite prevalent in

the real world while sealed-bid second-priceauctions are comparatively rare, Michael H.Rothkopf et al. (1990) offer a possible expla-nation: bidders will be reluctant to revealtheir private values truthfully in an auction if either there may be cheating by the auctioneeror there will be subsequent auctions or nego-tiations in which the information revealed canbe used against them. 4 Such considerationsfavor ascending-bid auctions, since winningbidders need not reveal their entire demandcurves, only the portion below the winningprice. 5

The following articles constitute a less-than-exhaustive list of related research. Milgrom andWeber (1982b, pp. 45) introduce the uniform-price ascending-bid auction when bidders haveunit demands and there are multiple identicalobjects, and extend their (1982a) analysis of symmetric environments with afliated infor-mation to this multi-unit context. Eric S.Maskin (1992) demonstrates that, even forsingle-item auctions with asymmetric biddersand interdependent information, the Englishauction is more likely to yield efciency thanthe sealed-bid second-price auction. Maskin andJohn G. Riley (1989) examine optimal auctionsfor multiple identical objects in an independentprivate values setting. Alexander S. Kelso and

Vincent P. Crawford (1982), Gabrielle De-mange et al. (1986), Sushil Bikhchandani andJohn W. Mamer (1997), Bikhchandani (1999),Faruk Gul and Ennio Stacchetti (1999, 2000)and Milgrom (2000) study various auction pro-cedures for multiple items and their relationshipwith Walrasian prices under complete informa-tion. Bikhchandani and Joseph M. Ostroy(2001) and Bikhchandani et al. (2002) formu-late the auction problem as a linear program-ming problem and reinterpret the auction designherein as a primal-dual algorithm. Motty Perryand Philip J. Reny (2001, 2002) study moregeneral homogeneous goods environments withinterdependent values and extend the auctiondesign herein to such environments. Partha Das-gupta and Maskin (2000) dene a sealed-bidauction procedure designed to attain efciencywith heterogeneous items. Vijay Krishna andPerry (1998) study the Vickrey auction in anindependent private values setting.

The article is organized as follows. Section Iinformally describes the new ascending-bid

auction design via an illustrative example. Sec-tion II presents the formal model. Section IIIanalyzes the private values case, demonstratingthat sincere bidding is an equilibrium and that,under incomplete information and a full sup-port assumption, it is the unique outcome of iterated weak dominance. Section IV treats, in acontinuous-time formulation, a symmetric model

3 Indeed, the subtlety of the Vickrey auction has been aproblem even in experimental auction studies involvingmerely a single object. John H. Kagel et al. (1987) foundthat bidders with afliated private values behaved closer tothe dominant strategy in ascending-clock auctions than insealed-bid second-price auctions.

4 Richard Engelbrecht-Wiggans and Charles M. Kahn(1991) and Rothkopf and Ronald M. Harstad (1995) alsoprovide models emphasizing the importance of protectingthe privacy of winners valuations.

5 For example, suppose that the government sells a spec-trum license valued by the highest bidder at $1 billion butby the second-highest bidder at only $100 million in asealed-bid second-price auction. There are at least threepotential problems here. First, there is likely to be a publicrelations disaster, as the ensuing newspaper headlines read,Billion-dollar communications license given away for 10cents on the dollar. Second, there may be a problem of seller cheating: after opening the submitted bids, the auc-tioneer may ask his friend, Mind if I insert a bogus $997million bid in your name? It wont cost you anything, but itwill earn me a lot of money. Third, revelation of thewinners billion-dollar value may imperil her subsequentbargaining position with equipment suppliers. By contrast,an English auction avoids these problems, revealing only

that the high bidders value exceeded $100 million. (Seealso the nice discussion of this point in McMillan, 1994,especially p. 148.)



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of interdependent values, where bidders haveafliated signals and exhibit constant marginalvalues. Section V discusses the limitations of the interdependent-values analysis. Section VIconcludes. Proofs appear in the Appendix.

I. An Illustrative Example

I will illustrate my proposal for an ascending-bid, multi-unit auction with an example looselypatterned after the rst U.S. spectrum auction,the Nationwide Narrowband Auction. There areve identical licenses for auction. 6 Bidders havetaste for more than one license, but each islimited to winning at most three licenses. 7

There are ve bidders with values in the rele-vant range, and their marginal values are givenas in Table 1 (where numbers are expressed inmillions of dollars).

For example, if Bidder A were to purchasetwo licenses at a price of 75 each, her totalutility from the transaction would be computedby: u A(1) u A(2) 75 75 123 113150 86. In this example, bidders are pre-sumed to possess complete information abouttheir rivals valuations.

The proposed auction is operated as anascending-clock auction. The auctioneer an-nounces a price, p, and each bidder i responds

with a quantity, qi( p). The auctioneer then cal-culates the aggregate demand and increases theprice until the market clears. Payments are cal-culated according to a clinching rule. Supposethat the auction begins with the auctioneer an-nouncing a price of $10 million ( ). BiddersA to E, if bidding sincerely according to thevaluations of Table 1, would respond with de-mands of 3, 1, 3, 2, and 2, respectively. Theaggregate demand of 11 exceeds the availablesupply of 5, so the auction must proceed further.Assume that the auctioneer increases the pricecontinuously. Bidder E reduces his quantity de-manded from 2 to 1 at $25 million, Bidder Edrops out of the auction completely at $45 mil-lion, and Bidder C reduces his quantity de-manded from 3 to 2 at $49 million, yielding:

Price Bidder A Bidder B Bidder C Bidder D Bidder E

49 3 1 2 2 0

The aggregate demand, now 8, continues toexceed the available supply of 5, so the pricemust rise further. When the price reaches $65million, Bidder D reduces her demand from 2 to1, but the aggregate demand of 7 continues toexceed the available supply of 5:


65 3 1 2 1 0

Let us examine this situation carefully,however, from Bidder As perspective. Thedemands of all bidders other than Bidder A(i.e., 1 2 1 0) total only 4, while 5licenses are available for sale. If Bidders B toE bid monotonically, Bidder A is now math-ematically guaranteed to win at least one li-cense. In the language of this article (and inthe standard language of American sports

6 In actuality, the FCCs Nationwide Narrowband Auc -tion offered ten licenses of three different types: ve (es-sentially identical) 50/50 kHz paired licenses; three(essentially identical) 50/12.5 kHz paired licenses; and two(essentially identical) 50 kHz unpaired licenses. For anextraordinarily cogent discussion of the Nationwide Nar-rowband Auction, see Cramton (1995).

7 In actuality, the FCC limited bidders to acquiring threelicenses, either through the auction or through resale. Ob-serve that the total number of licenses is not an integermultiple of each bidders limitation on purchases, so withincomplete information, the inefciency result of Ausubeland Cramton (2002, Theorem 1) is applicable, even if themarginal values for the rst, second, and third licenses areequal.

TABLE 1B IDDER VALUATIONS IN ILLUSTRATIVE EXAMPLE

Bidder A Bidder B Bidder C Bidder D Bidder E

Marginal value (1 unit) 123 75 125 85 45Marginal value (2 units) 113 5 125 65 25

Marginal value (3 units) 103 3 49 7 5



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writing), Bidder A has clinched winning oneunit. The rules of the auction take this calcu-lation quite literally, by awarding each bidderany units that she clinches, at the clinchingprice. Bidder A thus wins a license at $65 million.

Since there is still excess demand, price con-tinues upward. With continued sincere biddingrelative to the valuations in Table 1, the nextchange in demands occurs at a price of $75million. Bidder B drops out of the auction, butthe aggregate demand of 6 continues to exceedthe available supply of 5:


75 3 0 2 1 0

Again examine the situation from Bidder Asperspective. Her opponents collectively de-mand only 0 2 1 0 3 units,whereas 5 units are available. It may now besaid that she has clinched winning 2 units:whatever happens now (provided that her ri-vals bid monotonically), she is certain to winat least 2 units. Hence, the auction awards asecond unit to Bidder A at the new clinchingprice of $75 million. By the same token, let usexamine this situation from Bidder Cs per-spective. Bidder Cs opponents collectivelydemand only 3 0 1 0 4 units,whereas 5 units are available. He has clinchedwinning 1 unit: whatever happens now (pro-vided that his rivals bid monotonically), he iscertain to win at least 1 unit. Hence, theauction awards one unit to Bidder C at a priceof $75 million.

There continues to be excess demand until

the price reaches $85 million. Bidder D thendrops out of the auction, yielding:


85 3 0 2 0 0

At $85 million, the market clears. Bidder A,who had already clinched a rst unit at $65million and a second at $75 million, wins a thirdunit at $85 million. Bidder C, who had alreadyclinched a rst unit at $75 million, wins a sec-

ond unit at $85 million. In summary, we havethe following auction outcome:

Bidder A Bidder B Bidder C Bidder D Bidder E

Units won 3 0 2 0 0Payments 65 75

850 75 85 0 0

Observe that the outcome is efcient: theauction has put the licenses in the hands of bidders who value them the most. Also ob-serve that the new (dynamic) auction has ex-actly replicated the outcome of the (sealed-bid) Vickrey auction. Bidder A won her rst

unit at the third-highest rejected bid, her sec-ond unit at the second-highest rejected bid,and her third unit at the highest rejected bid.Bidder C won his rst unit at the second-highest rejected bid and his second unit at thehighest rejected bid.

One interesting observation is that if BidderA had been subject to a binding budget con-straint of strictly between $225 and $255 mil-lion in this example, then the standard Vickreyauction would have likely failed to deliver theefcient outcome. In the sealed-bid implemen-tation asking bidders to report their valuationsusing downward-sloping demand curves, thebudget-constrained Bidder A would have beenunable to afford to report that her marginalvalue for a third unit exceeded $85 million andso the item would instead have been awarded toBidder D. There is no such difculty in theproposed ascending-bid auction: Bidder Awould fail to win three units only if her budgetconstraint were less than $225 million, a limitso low that it would prevent her from paying the

true opportunity cost of the third unit.8

8 If a budget-constrained multi-unit bidder bids only againstsingle-unit bidders without budget constraints, then the pro-posed ascending-bid auction yields increased efciency andrevenues as compared to the sealed-bid Vickrey auction. Ingeneral multi-unit environments with budget constraints, how-ever, the effect is ambiguous for two reasons. First, the ascend-ing-bid auction facilitates the expression of full valuations bymulti-unit bidders. If single-unit bidders themselves face bud-get constraints, then the multi-unit bidder may already winmore in the sealed-bid auction than is efcientdespite herown budget constraintand the ascending-bid auction maythen exacerbate this effect by relaxing her budget constraint.

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Next, let us reexamine the example of Table1, in order to see what outcome would haveensued if we had instead applied a uniform-pricing rule. As before, the auctioneer callsprices, bidders respond with quantities, and theprice is incremented until p* is reached, atwhich there is no excess demand. In a uniform- price ascending-clock auction, however, anybidder i assigned a nal quantity x*i pays theamount p* x*i. Then, there exists an equilibriumin which the auction concludes at a price of $75 million and with an inefcient allocation.More strikingly, if the example is perturbedso that Pr{ u A(3) k } , for every k 76, ... , 84, 86 and for small but positive ,this inefcient equilibrium is the unique out-

come of iterated weak dominance. By con-trast, the same criterionapplied to theascending auction with a clinching rulese-lects the sincere bidding equilibrium (seeTheorem 2 for the general argument).

To analyze the perturbed example, let us sup-pose that the prior bidding has been sincere andconsider the game at a price of $75 million. Thestanding bids of Bidders A to E are 3, 1, 2, 1,and 0, respectively. Observe that it is weaklydominant for Bidder D to maintain a quantity of 1 for all prices less than $85 million and then toreduce her quantity to 0 (since, with the per-turbed u A(3), Bidder A has a positive probabil-ity of reducing from 3 to 2 at any price between$75 and $85 million). Similarly, it is weaklydominant for Bidder B to reduce her quantity to0 at $75 million. Following elimination of thesestrategies for Bidders D and B, Bidder A (if shehas u A(3) 85) has two candidate optimalactions: she can continue to bid sincerely, win-ning 3 items at a price of $85 million (giving hersurplus of $84 million); or she can reduce her

demand, thereby immediately ending the auc-tion and winning 2 items at a price of $75million (giving her surplus of $86 million).Thus, uniform pricing uniquely gives a nal

price of $75 million and an inefcient allocationof goods of (2, 0, 2, 1, 0) as the outcome of iterated weak dominance. 9 By contrast, aclinching rule uniquely yields an efcient allo-cation (Theorem 2), and despite giving awayone license at a bargain $65 million in thisexample, yields $10 million more in revenue. 10

Most other conventional auction approachesalso yield inefcient equilibria when applied tothe example of Table 1. One approach is to sellthe identical objects, one after another, by suc-cessive single-item English auctions. This, forexample, is how Sothebys attempted to auctionseven satellite transponders in November 1981(see Milgrom and Weber, 1982b). Observe thatthere is then a tendency toward intertemporal

arbitrage, which lends the auction process auniform-price character.A more sophisticated approach is the simul-

taneous multiple-round (SMR) auction used bythe Federal Communications Commission(FCC) to assign spectrum licenses. 11 Bidderssuccessively name prices on individual items;and the bidding is not deemed to have con-cluded for any single item until it stops for allitems. In such a format, there is an even strongertendency toward arbitrage, so that similar itemssell for similar prices. Most strikingly, in thereal-world Nationwide Narrowband Auction onwhich Example 1 was patterned, the ve virtu-ally identical 50/50 kHz paired licenses eachsold for exactly $80 million; 12 subsequent FCCauctions have displayed only minor amounts of price discrepancy for similar licenses.

To the extent that prices are arbitraged undereither of these approaches, essentially the sameinefciencies should result as in the uniform-price ascending-bid auction. If either ve suc-cessive single-item auctions or the FCCs SMR

auction were used in Example 1, Bidder A does

Second, multi-unit bidders who bid against budget-constrainedopponents may have incentive to overbid on some units inorder to deplete their opponents budgets. This complicatedeffect may occur in both the sealed-bid and ascending-bidauctions, rendering the comparison ambiguous. The effect of budget constraints on auction strategies and outcomes will beanalyzed further in future work.

9 In the full iterated weak dominance argument (omittedhere, for brevity), we would argue also that neither BidderA nor Bidder C reduces demand below 2 and that neitherBidder B nor Bidder D reduces demand below 1 before theprice reaches $75 million.

10 The revenue ranking of the alternative ascending-bidauction versus the uniform-price ascending-bid auction isambiguous.

11 See Cramton (1995) and Milgrom (2000).12 See Cramton (1995). Moreover, bidders could submit

any integer prices in excess of a (nonbinding) minimum bidincrement.



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best by bidding only up to a price of $75 mil-lion. With the ve successive auctions, BidderA might consequently lose the rst three auc-tions to Bidder C (2 units) and Bidder D (1unit); with the high marginal values out of theway, however, Bidder A assures herself of win-ning the last two auctions at $75 million each.Similarly, with the SMR auction, two of BidderAs $75 million bids would not be outbid.

Finally, let us consider the two sealed-bidauction formats that have generally been usedfor U.S. (and other governments) Treasury auc-tions: the pay-as-bid auction and the uniform- price auction. 13 As applied to Example 1, thesetwo auctions again have the property that allequilibria in undominated strategies are inef-

cient. For the uniform-price auction, this fol-lows the same argument as before: in anefcient equilibrium in undominated strategies,Bidder Ds bid of $85 million and Bidder Bsbid of $75 million need to be rejected. Bidder Acalculates that she can improve her demand sothat she wins only two items. For the pay-as-bidauction, we can apply almost identical reason-ing: in an efcient equilibrium, the winning bidsmust all be at least $85 million; otherwise,unsatised Bidder D could protably deviate.But Bidder A could then substitute two bids of $75 million ( ) for her three bids of $85million, improving her payoff. 14

II. The Model

There are at least two useful ways to formu-late a mathematical model of the new auction.In the rst, the price clock advances in discrete(e.g., integer) steps, and bidders marginal val-uations are taken from the same set of discrete

(e.g., integer) values. In the second, the priceclock operates in continuous time, enabling fullseparation of bidders continuous signals. Sec-tions II and III focus on the rst, simpler for-mulation. The model is sufciently rich toprovide a relatively comprehensive treatment of private values. Moreover, most practical imple-mentations of auctions include some amount of discreteness, giving rise to a positive probabilityof ties, and the analysis of the discrete formu-lation includes a rather complete treatment of ties. (Continuous-time games obviate this prob-lem, since a tie is then a zero-probability event.)Section IV introduces and studies the secondformulation, which is required for a treatment of efciency using the standard (continuous) mod-

els of interdependent values.A seller wishes to allocate M homogeneousgoods among n bidders, N {1, ... , n}. Eachbidder i may be assigned any quantity xi in theconsumption set X i , subject to the feasibility con-straint that i 1

n xi M . We simultaneously treattwo interesting cases: X i [0, i], so that the goodis perfectly divisible; or X i {0, 1, 2, ... , i}, sothat the good is discrete. (In either case, 0 i M .) Bidder is utility is assumed to be quasilinear,equaling her pure private value, U i( xi), for thequantity xi she receives less the total payment, yi ,that she is obligated to pay: U i( xi) yi. The valueU i is assumed to be the integral of a marginalvalue ui , and so U i( xi) 0

xi ui(q) dq. Eachbidders marginal value function, ui , may bepublicly known, making this a game of completeinformation, or privately known, making this agame of incomplete information. In either case,we assume that all marginal values are uniformlybounded above by u 0 and below by zero. Themarginal value ui : [0, i] 3 is assumed to beweakly decreasing in q and integer valued. Thus,

bidders exhibit diminishing marginal utilities, Wal-rasian price(s) are guaranteed to exist, and the lowestWalrasian price is an integer between 0 and u .

In order to simplify the following presenta-tion, we will place two constraints on biddingstrategies. First, bidding will be constrainedby a monotone activity rule equation (1)belowthat is, bidders will be required to bid(weakly) downward-sloping demand curves.Second, bidders will be constrained not to bidfor smaller quantities than they have alreadyclinched (equation [5] below). While neitherconstraint is required for the results established

13 These formats are dened and studied in detail inAusubel and Cramton (2002).

14 The pay-as-bid and uniform-price auctions also possessefcient equilibria, but only if we allow bidders to use weaklydominated strategies. For Example 1, following Bikhchandani(1999), it is an efcient equilibrium of the pay-as-bid auctionif Bidder A submits three (winning) bids of 85 ( ), BidderC submits two (winning) bids of 85 ( ), Bidder D submitsa (losing) bid of 85, and some bidder submits an additional(losing) bid, b, of at least 76. Observe, however, that thisrequires that the additional losing bid, b, exceed the biddersmarginal value. If b 76, Bidder A can protably deviate byinstead bidding only b , thereby settling for only twoobjects. Similar reasoning applies to the uniform-price auction.



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in this section, 15 both constraints simplifythe description of the auction to the economistor to the bidder, and both would likely be im-posed in real-world auctions. 16

The auction is modeled as a dynamic game indiscrete time. At each time t 0, 1, 2, ... , T , theprice p t t is communicated to (or alreadyknown by) the n bidders, and each bidder iresponds by bidding a quantity xi

t X i. Thepresentation is simplest if bidders are con-strained to bid monotonically:

(1) Monotone activity rule : xit xi

t 1,

for all i 1, ... , n

and all t 1, ... , T .The nal time, T , after which the auction exog-enously ends, is selected so as not to bind, i.e.,T u .

Suppose that the auction is fully subscribed atthe starting price: i 1

n xi0 M . Then the auc-

tion continues until such time that there is noexcess demand, or until the exogenous endingtime T is reached, whichever occurs sooner.Thus, after each time t 0, ... , T , the auction-eer determines whether i 1

n xit M . If this

inequality is satised, then the current time t isdesignated the last time of the auction: we write L t . Each bidder i is assigned a nal quantity x*i that satises xi

L x*i xi L 1 and i 1

n x*i M .17 If this inequality is not satised but t T ,

the exogenous ending time, then the currenttime T is designated the last time of the auction:we write L T . Each bidder i is assigned a nalquantity x*i that satises x*i xi

L and i 1n x*i

M .18 Finally, if there remains excess demandand t T , the auction game proceeds to timet 1 (with associated price p t 1 t 1) andthe process repeats.

At any time t , we dene the vector of cumu-lative clinches, {C i

t }i 1n , by:

(2) C it max 0, M

j i

x jt ,

for all t 0, ... , L 1 and i 1, ... , n, and

(3) C i L x*i ,

where L is the last auction round and

x*i is the final quantity assigned to bidder i.

We dene the vector of current clinches,{c i

t }i 1n , at time t as the difference between the

cumulative clinches at time t and the cumulativeclinches at time t 1, i.e.,

(4) c it C it C it 1,

for t 1, ... , L and c i0 C i

0, for all i 1, ... , n.

As discussed above, in order to simplify thepresentation, the bidder is also constrained tobid no smaller a quantity than her prior cumu-lative clinches:

(5) xit C i

t 1,

for all i 1, ... , n and all t 1, ... , T .

15 The constraint of a monotone activity rule is dropped inthe sequel paper, Ausubel (2002), where clinching is replacedby notions of crediting and debiting, yet similar efciencyresults are obtained. The constraint of not allowing bidding forsmaller quantities than have already been clinched is irrelevantwhen suitable restrictions are placed on the rationing rule, forexample, as in footnotes 17 and 18.

16 In real-world multi-item auctions, activity rules areoften imposed. The concern is that without an activity rule,a bidder with serious interest in the items for auction maychoose to wait to bid, as a snake in the grass, until theauction appears nearly ready to close. The activity ruleprevents a bidder from concealing her true intentions untillate in the auction, by requiring her to bid on a givenquantity early in the auction in order to preserve the right tobid on this quantity late in the auction.

17 If i 1n xi

L M , then there is a need for rationing someof the bidders in order to sell the entire quantity M . So long asit is consistent with xi

L x*i xi L 1 and i 1

n x*i M , therationingrule maybe specied relatively arbitrarily, but it mustsatisfy the following monotonicity property: if xi

L xi L 1 , then

the expected quantity E [ x*i ] assigned to bidder i must bestrictly greater than her nal bid xi

L, and if the nal bid xi L of

bidder i is increased, while holding the nal bids x i L of all

opposing bidders xed, then the (probability distribution onthe) quantity x*i assigned to bidder i must increase.

18 The rationing rule may be specied relatively arbi-trarily, but it must satisfy the following monotonicity prop-erty: if the nal bid xi

L of bidder i is increased, while holdingthe nal bids x i

L of all opposing bidders xed, then the(probability distribution on the) quantity x*

iassigned to

bidder i must increase.



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The payment rule is that the payment for eachunit is the price at which it is clinched. Ingeneral (including continuous time) games, let p(t ) denote the price at time t and let C i(t )denote the cumulative clinches based on thebids at time t . Then bidder is total payment isthe following Stieltjes integral:

(6) yi0

L

p t dC i t .

In the discrete-time notation of the current sec-tion, the payment equation (6) may equivalentlybe written:

(7) yit 0

L

p t c it .

However, if i 1n xi

0 M , then each bidder i isassigned the quantity xi

0 at the starting (zero)price.

A full specication of an ascending-bid auc-tion game also requires some precision in stip-ulating the informational assumptions, asdifferent informational assumptions potentiallylead to different outcomes. Let h t { x 1t , ... , xn

t }t t denote the history of play prior to time t and let hi

t denote the summary of the history thatis made observable to bidder i (above and be- yond her own prior bids ). The following arethree of the most interesting available informa-tional rules:

FULL BID INFORMATION : The summaryof the history observable to bidder i is:h i

t { x1t , ... , xn

t }t t , i.e., the completehistory of all bids by all bidders.

AGGREGATE BID INFORMATION : The sum-mary of the history observable to bidder iis: h i

t { j 1n x j

t }t t , i.e., the completehistory of the aggregate demand of allbidders.

NO BID INFORMATION : The summary of the history observable to bidder i is: h i

t

1, if j 1n x j

t 1 M , and 0, otherwise, i.e.,whether the auction is still open.

Given the informational assumption chosen, let H i

t denote the set of all possible histories ob -servable to bidder i at time t . In each of thetheorems below, if the informational assump-

tion is not otherwise specied, then the resultholds for all three informational rules.

A strategy i : {0, ... , T } H it 3 X i of player

i (i 1, ... , n) is any function of times andobservable histories to quantities that is consis-tent with the bidding constraints, and the strat-egy space i is the set of all such functions i(t ,h i

t ). The information structure of the auctiongame may be one of complete or incompleteinformation regarding opposing bidders valua-tions. With complete information, each bidderis fully informed of the functions { U j } j 1

n ,and (if there is also full bid information) theappropriate equilibrium concept is subgameperfect equilibrium. With incomplete informa-tion and pure private values, each bidder i is

informed only of her own valuation functionU i and of the joint probability distributionF from which the prole { U j } j 1

n is drawn.In static games of incomplete information, au-thors sometimes advocate ex post equilibrium,which requires that the strategy for each playerwould remain optimal if the player were to learnher opponents types (see Jacques Cremer andRichard P. McLean, 1985). In the current con-text of a dynamic game, the equilibrium conceptthat we will dene and use is ex post perfect equilibrium, which imposes this same conditionat every node of the auction game:

EX POST PERFECT EQUILIBRIUM . The strategy n-tuple { i}i 1

n is said to comprise an ex postperfect equilibrium if for every time t , fol-lowing any history ht , and for every realiza-tion {U i}i 1

n of private information, the n-tuple of continuation strategies { i( , t , hi

t ,U i)}i 1

n constitutes a Nash equilibrium of thegame in which the realization of { U i}i 1

n iscommon knowledge.

Alternatively, we could have explicitly denedbeliefs for each bidder and stated the theoremsof this article in terms of the perfect Bayesianequilibrium concept. 19 (Indeed, the results in

19 We would begin by specifying that, after every his-tory, each player i has posterior beliefs, denoted i( t , hi

t ,U i), over opponents utility functions, U i {U j } j i.The n-tuple { i , i}i 1

n is then dened to comprise a perfect Bayesian equilibrium if the strategies i i , if the beliefs

iare updated by Bayes rule whenever possible, and if

following any history h t of play prior to time t , i is a best



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Section IV involving interdependent valuationswill utilize perfect Bayesian equilibrium.) Stat-ing the private values results in their currentform, however, gives them a number of addi-tional desirable properties, e.g., the results areindependent of the underlying distributions of bidders types (see also Cremer and McLean,1985; Maskin, 1992; Ausubel, 1999; Perry andReny, 2001, 2002). The results as stated alsoencompass the complete-information version of the model, since ex post perfect equilibriumthen reduces to the familiar equilibrium conceptof subgame perfect equilibrium.

III. Results with Private Values

This section provides the private values re-sults of the article. Sincere bidding is an ex postperfect equilibrium of the model of Section II.Furthermore, under incomplete information anda full-support assumption, it is the uniqueoutcome of iterated weak dominance. We beginby dening sincere bidding, which informallymeans you just bid what you think it is worth:

DEFINITION 1: The sincere demand of bidderi at price p is: Q i( p) inf{arg max xi X i{U i( xi) pxi}}. Sincere bidding is the strategyin which, subject to the constraints posed by themonotone activity rule and her previousclinches, bidder i bids her sincere demand atevery time t and after every history hi

t :

(8) x it min xit 1, max Q i pt , C it 1 ,

for all t 1, ... , T , and xi0 Q i p

0 .

For example, given the illustrative valuationsof Bidder D in Table 1, the sincere bid is: x D

t

3, for t 0, ... , 6; x Dt

2, for t 7, ... , 64; x Dt 1, for t 65, ... , 84; and x D

t 0, for t 85, ... , T . This, however, assumes that the con-straint C D

t 1 x Dt x D

t 1 is not binding due tothe history of play in the auction. Sincere bid-ding is specied in Denition 1 so that thebidder never bids more than her quantity in theprevious period and never bids less than thequantity that she has already clinched.

Note that the assignment of goods in the auc-tion has been specied (see Section II, para. 5) insuch a way that bidder i may be required to pur-chase more than x*i xi

L units at price p L (that is,a larger number of units than she bid for at thatprice, albeit no larger a number than xi L 1 , thenumber she bid for at the previous price). Never-theless, observe that, given the sincere-biddingstrategy specied in Denition 1, there is neverany ex post regret. Any time t in which a sincerebidder i reduces her bid, she is indifferent betweenreceiving her prior bid xi

t 1 and her current bid xit .

For example, using the strategy in the previousparagraph, Bidder D could potentially win 2 unitsat a price of 65, even though x D

65 1. Her mar-ginal value equals 65, however, so she is in fact

indifferent to winning 1 or 2 units at 65.We are now ready to state our rst theorem.All of the theorems are proved in the Appendix.

THEOREM 1: In the alternative ascending-bidauction with private values, sincere bidding byall bidders is an ex post perfect equilibrium, 20

yielding the efcient outcome of the Vickreyauction. Furthermore, with no bid information,sincere bidding is a weakly dominant strategyfor every bidder after every history.

Theorem 1 notwithstanding, there may existother equilibria besides the sincere-biddingequilibrium. Consider the following examplewith two bidders, subscripted by A and B, andtwo identical items. Suppose that u A(1) 4;u A(2) 2; u B(1) 3; and u B(2) 1. There isa sincere-bidding equilibrium in which bidder Abids for two units at t 0, 1; one unit at t 2,3; and zero units at t 4. Bidder B bids for twounits at t 0; one unit at t 1, 2; and zero unitsat t 3. Each bidder wins one unit, with Bidder

A paying 1 and Bidder B paying 2. However,there also exists a low revenue equilibrium inwhich Bidder A bids for one unit at t 0, 1, 2,3, and zero units at t 4, while Bidder B bidsfor one unit at t 0, 1, 2, and zero units at t 3. In the low-revenue equilibrium, each bidderagain wins one unit, but each bidder pays zero.There also exists a continuum of other equilibria

response (given beliefs) for every player i in the continua-tion game against { j} j i.

20 With full bid information and under complete infor-mation regarding bidders valuations, this statement simpli-es to saying that sincere bidding by every bidder is asubgame perfect equilibrium.



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in this example. 21 Each of these equilibriacorresponds to an equilibrium of the Vickrey auc-tion. For example, the low-revenue equilibriumcorresponds to the equilibrium of the Vickreyauction in which Bidder A submits bids of 4 and0, and in which Bidder B submits bids of 3 and 0.

In the Vickrey auction, the additional equi-libria are discarded by eliminating (weakly)dominated strategies. 22 More intricate reason-ing is generally required to eliminate the addi-tional equilibria in the alternative ascending-bidauction. The reason is that, with full or aggre-gate bid information, insincere bidding is not nec-essarily dominated. For example, suppose that forsome bizarre reason, bidder j uses the strategy of maintaining x j

t x j0 so long as xi K , for some

positive constant K , but of dropping to x jt 1

0 inthe rst period following that xit K . Then it is

possible that bidder i may improve her payoff byreducing her demand to K at a price p where hermarginal utility, ui(K ), still exceeds p.

The additional equilibria may be eliminated,however, using a combination of iterated weak dominance and incomplete information. In theabove example, suppose that the marginal val-ues of the respective bidders are instead distrib-uted according to:

u A 1 , u A 2

(4, 2), with probability 1 11(4, 1), with probability4, 0 , with probability3, 2 , with probability3, 1 , with probability3, 0 , with probability2, 2 , with probability2, 1 , with probability2, 0 , with probability1, 1 , with probability1, 0 , with probability0, 0 , with probability

,

u B 1 , u B 2

3, 1 , with probability 1 63, 0 , with probability2, 1 , with probability2, 0 , with probability1, 1 , with probability

1, 0 , with probability0, 0 , with probability

.

Then it is straightforward to see that, with asingle round of elimination of weakly domi-nated strategies, one can eliminate the possibil-ity that either bidder will prematurely reducedemand from one unit to zero. With a secondround of elimination, one can eliminate the pos-sibility that either bidder will prematurely re-duce demand from two units to oneonce her

opponent has already reduced to one unit. Andwith a third round of elimination, one can elim-inate the possibility that either bidder will pre-maturely reduce demand from two units toonebefore her opponent has already reducedto one unit.

More generally, let us assume incomplete in-formation and make the following assumption:

DEFINITION 2: For any nonnegative integerk , let (k ) denote the set of all weakly decreas-ing functions : X i 3 {0, ... , k }. In the privatevalues model with incomplete information, bid-der j is said to satisfy the full support assump-tion if there exists u j 0 such that theprobability distribution from which bidder jsmarginal value function u j is drawn has sup-port equal to the full set (u j).

23

The role of the full support assumption is toguarantee that, conditional on a sincere bid, x j(t ), at time t , there is both a positive probabil-ity that the next sincere bid satises x j(t 1)

x j(t ) (provided, of course, that t 1 u j)and a positive probability that the next sincerebid satises x j(t 1) , for every 0. If thefull support assumption holds for all bidders ji, then every bid by bidder i matters. 24 The next

21 In addition, there exists a third (pure) equilibriumstrategy for bidder A, in which bidder A bids for two unitsat t 0; one unit at t 1, 2, 3; and zero units at t 4. Acontinuum of equilibria is constructed by pairing each mix-ture for bidder A over the three aforementioned pure strat-egies with each mixture for bidder B over the twoaforementioned pure strategies. I am grateful to an anony-mous referee for providing this example.

22 For example, bidder A submitting bids of 4 and 0 isweakly dominated by bidder A (sincerely) submitting bidsof 4 and 2, since if bidder B (unexpectedly) submitted bidsof 1 and 1, bidder A would then attain a higher payoff.

23 If, instead of being drawn independently, the utilityfunctions of the bidders are drawn from a joint probabilitydistribution, then the analogous condition can be requiredon the marginal distribution for bidder i, given any realiza-tion for bidders i.

24 Conversely, suppose in an example similar to that of Table 1 that Bidder Ds marginal value for a second unit



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theorem shows that, under private values, in-complete information and the full support as-sumption, sincere bidding is the uniqueoutcome of iterated weak dominance:

THEOREM 2: Under private values, incompleteinformation and the full support assumption, sin-cere bidding by all bidders is the unique outcomeof iterated elimination of weakly dominated strat-egies in the alternative ascending-bid auction. 25

Observe the following special cases of The-orem 2. For a single item, sincere bidding is theunique outcome of iterated weak dominance inthe English auction. For M identical items andbidders with unit demands, sincere bidding is

the unique outcome of iterated weak dominancein the uniform-price ascending auction. Both of these special cases obviously also require thefull support assumption, which specialized tothese cases is simply the requirement that thesupport of ui(1) is a set {0, ... , u i}.

One other observation is worth making at this juncture. The reason that we are able to obtainexactly the Vickrey outcome (as opposed tomerely an approximation) in the discrete auc-tion game is our assumption that all marginalvaluations are integers. As a consequence, allpayments in the Vickrey auction are integers,and there is no loss of information in elicitingbids only at integer prices. In the interdependentvalues model of the next section, however, mar-ginal valuations may take any nonnegative realvalues, so it is then necessary to utilize a con-tinuous game in order to obtain full efciency.

IV. Results in a Continuous-Time Game withSymmetric, Interdependent Values

Among the most inuential results in thesingle-item auction literature is the compari-

son between the second-price auction (a staticauction) and the English auction (the associ-ated dynamic auction) in a symmetric modelwith afliated values. Each format exhibits anefcient equilibrium, but the efcient equilib-rium of the dynamic auction yields higherexpected revenues than that of the static auc-tion (Milgrom and Weber, 1982a). 26 Theanalogous comparison, for auctions of multi-ple identical objects, is the comparison be-tween the Vickrey auction and the alternativeascending-bid auction of this article. We ndin this section that, in a symmetric model withat demands and afliated values, the dy-namic auction has two advantages over thestatic auction. First, exactly as in Milgrom

and Webers analysis, the dynamic auctionprovides greater linkage between the paymentand the bidders signals, increasing the sell-ers expected revenues. Second, a Champi-ons Plague (or generalized Winners Curse)emerges that is not present in the single-itemanalysis, adversely affecting the efciency of the static auction.

A seller offers M discrete (and indivisible)units of a homogeneous good. The n biddershave at demands: each bidder i obtains con-stant marginal utility of V i from each of up to iunits of the good, but zero marginal utility fromany more than i units, where the capacity isatises 0 i M . Let the capacities besufciently large that there is competition forevery unit of the good (i.e., j i j M ). Themarginal values V i (i 1, ... , n) are assumed toderive from afliated signals. Let S (S1 , ... ,Sn) be a vector of n real-valued signals whichare privately observed by the n respective bid-ders. Also let S i denote the (n 1) signalsother than that observed by bidder i, without the

identities of the individual bidders indicated.Following Milgrom and Weber (1982a), it willbe assumed that:

(A.1) V i v (Si , S i), where v is the samenonnegative-valued function for everybidder i (i 1, ... , n), v is continuousin all its arguments, v is strictly in-

equals 65 but that there is zero probability that any opposingbidders marginal value is anywhere in the interval [60, 70].Then sincere bidding is not quite mandated: it is irrelevantto Bidder Ds payoff at which price in [60, 70] she reducesher quantity from 2 to 1.

25 Elimination or iterated elimination of weakly domi-nated strategies is sometimes criticized because its outcomemay depend on the order of elimination. Observe, however,that Theorem 2 establishes order independence in this par-ticular context.

26 Milgrom and Weber (1982a) also compare the sealed-bid rst-price auction of a single item. For a comparisoninvolving the pay-as-bid auction (the multi-unit version of the rst-price auction), see Ausubel and Cramton (2002).



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creasing in its rst argument, and v isnondecreasing in its remaining argu-ments. 27

(A.2) E [V i] , for every bidder i (i 1, ... ,n).

(A.3) The variables ( S1 , ... , Sn) are afliated.(A.4) The joint density, f ( , ... , ), of (S1 , ... ,

Sn) is symmetric in its arguments.

Loosely speaking, the afliation assumption(A.3) requires that the agents signals, Si , benonnegatively correlated with one another.More precisely, let s and s be possible realiza-tions of (S1 , ... , Sn). Let s s and s s denotetheir componentwise maximum and minimum,respectively. We say that ( S1 , ... , Sn) are afli-

ated if f (s s ) f (s s ) f (s) f (s ), for all s ands (see Milgrom and Weber, 1982a, p. 1098).It will often be helpful to let S ij denote the

(n 2)-tuple of signals received by biddersother than i and j, and to assume also:

(A.5) V i v (Si , S j , S ij ) v (S j , Si , S ij ) V j,whenever Si S j.

In order to accommodate full separation bybidders in their signalswhich is necessary forefciency in a model with a continuum of sig-nalswe change our model to a continuous-time game. But, once going to a continuous-time game, we need to treat the possibility thatbidder is strategy may be to reduce her quantityat a given time, while bidder js strategy may beto reduce his quantity at the soonest possibleinstant after bidder i reduces her quantity. Ide-ally, we should allow moves that occur con-secutively but at the same moment in time(Leo K. Simon and Maxwell B. Stinchcombe,1989, p. 1181).

The game may thus be conceptualized bythinking of time as being represented by apair, ( t , r ), where t is given by a continuousascending clock and r is given by an implicitdiscrete ascending counter. Times are orderedlexicographically: rst in t ; and second in r .Generally speaking, the clock time t incrementscontinuously, and each bidder is free to reduce

her quantity at any clock time. If, however,bidder i reduces her quantity at a given clock time t , bidder j is allowed to respond by reduc-ing his quantity at the same clock time t (but,nevertheless, after bidder is move). This is therole of the counter r : if bidder i reduces herquantity at ( t , r ), the next available time thatfollows is ( t , r 1). Each time that some bidderreduces her quantity, the counter incrementsinstead of the clock; and when players havenished reducing their quantities at the currentclock time, the clock resumes instead.

Whenever the clock is ascending, we shallmake full use of the continuous-time framework by specifying that price is a continuous andstrictly-increasing function of time and, in fact,

for simplicity dp / dt 1. There is no conceptualor game-theoretic reason, however, why theclock needs to resume at the same price aswhere it stopped and, in fact, we have consid-erable latitude in specifying the price at whichthe clock resumes. We shall consider two vari-ations on the continuous-time auction rules:

STOPPING THE CLOCK : Whenever a bid-der reduces her quantity demanded, theprice clock pauses to enable other quan-tity reductions. The clock then resumes its

ascent at the same price where it stopped,so that p(t ) t .TURNING BACK THE CLOCK : The same

procedure is followed as in stopping theclock. Whenever any bidder reduces herquantity to zero, however, the price clock is restarted at zero, so that p(t ) t t 0 ,where t 0 is the most recent time at whichsome bidder has reduced to zero. 28

There will be no confusion if we suppress theimplicit counter r from our notation. Any his-

tory of the auction game can be uniquely sum-marized by a nite string of pairs: h (t 0 ; x0), ... , (t L; x L). Each t denotes the time of the

th occasion on which one or more biddersstrictly decreased her quantity, and each x de-

27 As noted by Milgrom and Weber (1982a, p. 1100), thenondegeneracy assumption that a bidders expected valueis strictly increasing in her own signal is unnecessary for theresults to hold, but greatly simplies the proofs.

28 In the working paper version (Ausubel, 1997), arbi-trary restarting prices were allowed as a function of thehistory, in the turning back the clock variation. Here, werestrict attention to restarting prices of zero, in order both tosimplify the exposition and to limit the information aboutthe bidders distributions that needs to be known by theauctioneer.



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notes the vector of quantities demanded by bid-ders 1, ... , n beginning at that occasion. Sincequantities are discrete, and given the monotoneactivity rule, the length of any history h isbounded by the number of objects. Togetherwith the current time, h fully summarizes theprior play of the game. 29 Further, let xi(h) de-note bidder is current quantity and let C i(h) M j i x j(h) denote bidder is cumulativeclinches after history h.

Let si denote the realization of the privatesignal Si received by bidder i, and let h i denotethe summary of the history which is made ob-servable to bidder i. A pure strategy for bidderi is a pair of functions, i(si , hi) and i(si , hi), of private signals and observable summaries of the

history. Then i(si , h i) provides the earliestprice at which bidder i will decrease her de-mand, and i(si , h i) provides the quantity towhich she will decrease her demand, under thehypothesis that no opposing bidder j reduces hisown quantity rst. (It need not indicate whatbidder i will do if some opposing bidder doesreduce his quantity rst, since then the historychanges from h to h , and so bidder i wouldinstead play according to ( i(si , h i), i(si , h i)).The function i(si , h i) is restricted to generatebids that are consistent with the monotone ac-tivity rule and that are never bids for fewer unitsthan have already been clinched. Payments aredened analogously as in Section II.

For bidders with private values (that is, V iv (Si)), Theorems 1 and 2 continue to hold in thecontinuous-time framework of this section.Theorem 2 is established in this framework byrst eliminating all strategies except sincerebidding following histories such that the aggre-

gate demand of all bidders equals M 1, theneliminating all strategies except sincere biddingfollowing histories such that the aggregate de-mand of all bidders equals M 2, etc. Theproofs are omitted from the article.

For bidders with interdependent values (thatis, V i v (Si , S i) nontrivially depends on S i),the analysis dichotomizes into two cases: 30 (i)bidders have identical capacities ( i ) andthe number of available items is an integermultiple of the bidders capacities; and (ii) bid-ders capacities are unequal or the number of available items is not an integer multiple of thebidders capacities. The intuitive explanationfor the difference between these two cases isthat when m M / is an integer, the model is

closely related to one in which bidders possessunit demands and compete for m indivisibleobjects. There, symmetric equilibria with atbid functions exist, yielding full efciency.When m M / is not an integer or the i arenot equal, however, symmetric equilibria withat bid functions no longer exist.

First, in the case where M / is an integer, thestatic and dynamic auctions both have efcientequilibria but, due to the afliated values, theexpected revenues of the dynamic auction aregreater:

THEOREM 3: Let the bidders have identicalcapacities, , and let m M / be an integer.Then in a symmetric model with interdependentvalues satisfying (A.1)(A.4), both the Vickreyauction and the alternative ascending-bid auc-tion have efcient equilibria. Each attains fullefciency, but the alternative ascending-bidauction raises expected revenues the same as orhigher than the Vickrey auction. 31

In the case where M / is not an integer, or thei are not equal, however, the static auction

does not admit efcient equilibria in the inter-dependent values models, while the dynamicauction possesses an efcient equilibrium. Theintuition for the result builds upon the cele-brated Winners Curse:

29 To see the richness of the histories that this framework and notation allow, consider the history h (0; 3, 2, 2, 2),(15; 3, 1, 2, 2), (15; 3, 1, 2, 0), (27; 3, 0, 2, 0). This shouldbe interpreted as saying that Bidders A to D began bybidding 3, 2, 2, and 2, respectively. At a price of 15, BidderB reduced from 2 units to 1. Immediately afterand at thesame price of 15Bidder D responded by reducing from 2units to 0. The interpretation of the remaining point inhistory h depends on whether we are using the stopping-the-clock or the turning-back-the-clock variation. Withstopping the clock, p(27) 27, meaning that Bidder Breduced from 1 unit to 0 at a price of 27. With turning back the clock, p(27) 27 15 12 (since t 15 is the mostrecent time at which some bidder has reduced to zero),meaning that Bidder B reduced from 1 unit to 0 at a price of 12.

30 This dichotomy parallels our analysis of the uniform-price auction in Ausubel and Cramton (2002).

31 Theorem 3 holds regardless of whether the rule gov-erning the price process is stopping the clock or turningback the clock.



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THE W INNER S CURSE : In a single-item auctionwith interdependent values, a bidders ex-pected value conditional on winning theitem is less than her unconditional expectedvalue.

Now consider, for example, the at demandsmodel with M 3 and 2. If the goods areassigned efciently, then winning one unit in-dicates to a bidder that her signal equaled thesecond-order statistic of all bidders signals,while winning two units indicates to a bidderthat her signal equaled the rst-order statistic of all bidders signals. Winning more units isworse news than winning fewer units. (Seealso Ausubel and Cramton, 2002.) Thus, the at

demands model with assumptions (A.1)(A.5)exhibits:

THE CHAMPION S PLAGUE (OR GENERALIZED WIN-NERS CURSE ): In a multiple-item auction withinterdependent values, a bidders expectedvalue conditional on winning a larger quan-tity is less than her expected value condi-tional on winning a smaller quantity.

Observe that the static auction does not allowbidders to account for the Champions Plague intheir bidding without impairing efciency,while the dynamic auction does. We have:

THEOREM 4: Let the bidders have eitheridentical capacities , where M / is not aninteger, or unequal capacities i. Then in asymmetric model with interdependent valuessatisfying (A.1)(A.5), all equilibria of theVickrey auction are inefcient. The turning-back-the-clock version of the alternative as-cending-bid auction, however, possesses an

efcient equilibrium. Moreover, if bidders sig-nals are independent, then the alternativeascending-bid auction raises strictly higher ex-pected revenues than the Vickrey auction.

If bidders signals are independent, then inthe at demands model studied in this section,revenue maximization uniquely coincides withefciency (Ausubel and Cramton, 1999, Propo-sition 1). Consequently, the fourth sentence of Theorem 4 follows from the third sentence of Theorem 4. It is an open question whether thisrevenue ranking extends to at demands in a

symmetric model where signals are strictlyafliated.

At the same time, Theorem 4 should not bemisinterpreted to suggest that there does notexist any efcient static mechanism in this en-vironment. Indeed, in Appendix B of the work-ing paper version (now a separate paper,Ausubel, 1999), as well as in Philippe Jehiel andBenny Moldovanu (2001) and Perry and Reny(2002), an efcient direct mechanism is de-rived. Rather, the correct interpretation of The-orem 4 is merely that the rules of the standardVickrey auction do not allow efciency in theface of value interdependencies.

V. Limitations of the Auction Design forInterdependent Values

While the properties of the proposed auctiondesign are quite powerful for environments of private values, there are two basic limitations of the proposed auction design as applied to envi-ronments of interdependent values. First, the setof interdependent-values environments consid-ered is quite limited. Second, the turning-back-the-clock rule required to treat the limited setof interdependent-values environments (but not needed for private-values environments) intro-duces possibilities for manipulation. This sec-tion discusses each of these two limitations.

The interdependent-values environmentstreated in Section IV are limited to those withsymmetric bidders each possessing at de-mand curves. Each bidder i has a capacity iand a constant marginal value V i for all quanti-ties in the interval [0, i]. The constancy of marginal value in the interval [0, i] is commonknowledge; the private information relates only

to the level of V i. This restriction excludes manyinteresting examples. For example, a bidder isnot permitted to have a parameterized family of downward-sloping linear demand curves suchas V i(q i , S) v (S) q i , for q i [0, v (S)]. Thereason why such a family is excluded is asfollows. If the bidding within this parameterizedfamily of downward-sloping linear demandcurves were fully separating, then opponentscould infer the bidders exact type based on thequantity she bid at price zero. Given that thisbidder will continue to bid positive quantities atpositive prices, however, she has incentive to

1467 VOL. 94 NO. 5 AUSUBEL: AN EFFICIENT ASCENDING-BID AUCTION FOR MULTIPLE OBJECTS


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distort her bid downward in order to reduce heropponents beliefs and thereby win goods morecheaply. This incentive makes the equilibriumcomplex and inefcient.

The reason for limiting attention to bidderswith at demand curves is that such biddershave no incentive to distort in the way describedin the previous paragraph. The bidder does notfully reveal her private signal until she drops outof the auction, and by then it is too late for theinformation to be used against her. This makesit possible to construct equilibria without infor-mational distortion, and the clinching rule elim-inates incentive for noninformational quantitydistortion.

While this limitation on environments is

unfortunately strong, it is not so severe as torender the interdependent-values results irrel-evant. First, while conning, the family of environments treated here is nevertheless astrict generalization of the Milgrom and We-ber (1982a) model, which continues to beused as the basis for most theoretical andempirical analyses of ascending-bid auctionswith interdependent values. Second, while de-termining equilibria for bidders with interde-pendent values but strictly downward-slopingdemand curves will be a formidable taskprecisely because a fully efcient equilibriumdoes not existit still seems likely that theproposed dynamic-auction format willachieve greater efciencies than the corre-sponding static auction. Third, it can be ar-gued that even the general interdependent-values environments for which efcient directmechanisms can be constructed are not allthat general. They still require making strongassumptions such as that each bidders signalis one-dimensional (see Maskin, 1992; Jehiel

and Moldovanu, 2001), as well as valuemonotonicity and a single-crossing property(see Cremer and McLean, 1985; Ausubel,1999).

The turning-back-the-clock rule that is re-quired for the efciency results with interdepen-dent values introduces some possibilities formanipulation by bidders. While many forms of manipulative behavior are possible, the problemcan be seen most easily by considering one verysimple form of manipulation: a bidders secretuse of multiple bidding identities. This shillbidding problem, considered in Makoto Yokoo

et al. (2004) and Ausubel and Milgrom (2002),may be viewed as an extreme form of collu-sion; a bidder secretly establishes multipleidentities in the auction and bids them in acoordinated fashion. Consider an auction inwhich there is no limitation on the quantity thatmay be purchased by an individual bidder.Suppose that bidders are able to establish cti-tious bidding identities without detection bythe seller. A bidder in the turning-back-the-clock auction may elect to establish two cti-tious identities and to enter all three identities(the actual bidder name and the two shillidentities) into the auction. In the extremecase, the three identities each bid the maximumquantity until most or all opposing bidders drop

out of the auction. The role of the rst shill is todrop out and thereby guarantee that the auctionrestarts at a zero price. The role of the secondshill is to drop out immediately thereafter, caus-ing the actual bidder to clinch most or all of theunits at essentially zero prices.

Note that this form of manipulation does notoccur in the stopping-the-clock version of theauction. The possibility of inducing the price torestart is not present. Apart from the restartingpossibility, bidding under a single identity max-imizes the opportunities for a bidder to clinchunits at low prices, so bidding under multipleidentities would not helpand would likelyharmthe bidder. More precisely, in a privatevalues environment, and given the (weakly) di-minishing marginal values assumed in this arti-cle, a bidder can never benet from biddingunder multiple identities under stopping theclock. (This follows from the analysis of thestatic Vickrey auction by Yokoo et al., 2004;and Ausubel and Milgrom, 2002.) It is moredifcult to make categorical statements under

interdependent valuessince bidders expecta-tions then become importantbut it seemslikely that if the multiple identities bid a higherquantity than the bidder would bid singly, thiswould cause opponents to make positive infer-ences about value, leading the opponents to staylonger in the auction and harming the manipu-lative bidder.

Given the possibilities for manipulation in-troduced by a turning-back-the-clock rule, itseems quite possible that an efciency- orrevenue-maximizing seller might pass up thisdevice and settle instead for the stopping-the-



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clock version in which price never decreases. 32

Even for the interdependent-values environ-ment with at demand curves, the calculation of equilibrium under the stopping-the-clock ruleis very difcult. One presumes that, whileinferior to those obtained under the turning-back-the-clock rule, the stopping-the-clockequilibria are still probably superior to those of the sealed-bid multi-unit Vickrey auction. 33

Thus, the seller who elects to use the stopping-the-clock rule would likely retain some of thebenets associated with a dynamic auction,while greatly reducing the risk of manipulation.

VI. Conclusion

This article has proposed a new ascending-bid auction for multiple objects. This auctionformat occupies the analogous relationship withrespect to the sealed-bid (multi-unit) Vickreyauction that the English auction occupies withrespect to the sealed-bid second-price auction.In an environment where bidders have pureprivate values, the new dynamic auction gameexhibits a sincere-bidding equilibrium that at-tains full efciency and replicates the outcomeof the classic Vickrey auction. For some for-malizations of the auction game, the sincere

equilibrium is the unique outcome of iteratedweak dominance. In a symmetric environmentwhere bidders have afliated signals and inter-dependent values, the auction continues to pos-sess an efcient equilibrium, whereas allequilibria of the standard sealed-bid auctionsare inefcient.

Many of the advantages of dynamic auctionsover static auctions that have been advancedelsewhere in the literature appear to apply to theauction format proposed here. When bidderssignals are afliated in a symmetric environ-ment, a dynamic auction may generate greaterrevenues than the analogous static auction (Mil-grom and Weber, 1982a). When bidders valuesare interdependent, a dynamic auction may al-

locate items more efciently than the analogousstatic auction (Maskin, 1992). When the auctionprocess otherwise fails to protect the conden-tiality of bidders valuations, a dynamic auctionmay enhance privacy preservation as comparedto the analogous static auction (Rothkopf et al.,1990). When budget constraints impair the bid-ding of true valuations in a sealed-bid Vickreyauction, a dynamic auction may facilitate theexpression of true valuations while stayingwithin budget limits (Ausubel and Milgrom,2002). All of these advantages are obtained inthe current article while adhering to the funda-mental prescription of making bidders pay-ments as independent as possible of their ownreports (Vickrey, 1961).

Some other possible advantages of dynamicauctions over static auctions are difcult tomodel explicitly within standard economics orgame-theory frameworks. For example, as em-phasized in the introduction, it is generally heldthat the English auction is simpler for real-world bidders to understand than the sealed-bid

second-price auction, leading the English auc-tion to perform more closely to theory. Onemight expect this advantage to carry over to thecomparison between the ascending-bid auctionproposed here and the multi-unit Vickrey auc-tion. The current article does not contain anyformal analysis of this hypothesis, yet its valid-ity is clearly important for a real-world sellerdeciding among alternative auction formats.Three sets of researchers, however, have re-cently run laboratory experiments involving thenew dynamic auction, enabling us to begin ob-taining some practical insights.

32 Alternatively, as in the working paper version (Aus -ubel, 1997), the seller might utilize an intermediate versionof the turning-back-the-clock rule. For example, afterstopping at time t , the clock is restarted at a price of p 0.9sup t t { p(t )}. Thus, price is allowed to be rolled back somewhat, but not all the way back to zero. In order to makean effective choice of the constant, however, the auctioneerwould need to know considerable information about thestructure of bidders signals and values.

33 We know that all stopping-the-clock equilibria areinferior to the best turning-back-the-clock equilibrium,since the latter attains the optimum and the former (byreasoning similar to that of Theorem 4) cannot. Note that theintuition for the superior performance of the turning-back-the-clock auction is that it allows bidders to adjust dynam-ically for the Champions Plague, lowering their biddingthresholds after winning units. By similar reasoning, itseems probable that the stopping-the-clock equilibriawould be superior to those of the static Vickrey auction,since the stopping-the-clock format allows bidders tocompensate partially for the Champions Plaguethey canreduce their bidding thresholds after winning some units,but not necessarily as far as they would like towhereas thestatic Vickrey auction does not allow bidders to adjustdynamically for the Champions Plague at all.



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Kagel and Dan Levin (2001) and Kagel et al.(2003) have tested the proposed auction using aclever experimental design in which humansubjects play against computers in a two-unit,private-values setting. Kagel and Levin reportthat more than 99 percent of the predicted gainsfrom trade, and essentially exactly the predictedrevenues, are realized. Kagel et al. compare theproposed auction with the Vickrey auction,nding greater allocative efciency in the pro-posed auction:

The Ausubel auction comes signicantlycloser to sincere bidding than the staticVickrey auction even though the latter hasa stronger solution concept (implementa-tion in weakly dominated strategies ver-sus iterated deletion of weakly dominatedstrategies). This suggests a tradeoff be-tween the simplicity and transparency of amechanism and the strength of its solutionconcept for less than fully rational agents(Kagel et al., 2003).

Dirk Englemann and Veronika Grimm (2003)perform two-unit, private-values experimentsusing human subjects only, and they report verysimilar results. By contrast, Alejandro M. Manelliet al. (2000) run three-unit, interdependent-values experiments, obtaining higher revenuesin the dynamic auction but greater efciency inthe static auction. As in the other experiments,their subjects understood that it was better toavoid bidding above their values in the dynamicthan in the static auction. However, their subjects engaged in a different form of overbid-dingbidding for all three units when theywere told that they had value for only twounitsand this accounted for the reversal inefciency as compared to the other experi-

ments.There are at least two directions in which the

results of this article can be extended. First, asdiscussed in Section V, the treatment here of interdependent values is very limited. Someother authors have begun to obtain more generalresults for interdependent values. Perry andReny (2001) show that, with two bidders, myauction continues to yield efcient outcomes ina general specication of interdependent valuesbased on one-dimensional signals. They furthershow that by expanding the procedure to allowbidders to submit directed demands (oneagainst each other bidder), it is possible to ob-tain efcient outcomes with n bidders, identicalobjects, and interdependent values based onone-dimensional signals. Such extensions comeat the cost of greater complexity for bidders

andsimilar to the critique of the turning-back-the-clock rule in Section Vthey mayintroduce new possibilities for manipulation.Still, it seems likely that the ideas in this articlecan be extended to produce practical auctiondesigns appropriate for richer informational en-vironments than those treated here.

Second, the current article and most otherrecent work on efcient dynamic auctions of multiple items has restricted attention to homo-geneous goods. Nevertheless, even in clear real-world examples of auctions of identical items(e.g., auctions of three-month Treasury bills),there often occur in close proximity other auc-tions of related but different goods (e.g., auc-tions of six-month Treasury bills). In Ausubel(2002), I expand the environment to allow bid-ders with concave utilities over heterogeneouscommodities. Instead of a single price clock,I utilize multiple independent clocks to gener-alize the auction procedure herein. Subject toa few caveats, I conclude there that it isstill possible to replicate the outcome of the

Vickrey-Clarke-Groves mechanism with a dy-namic auction procedure.

APPENDIX

PROOF OF THEOREM 1:At every point in the alternative ascending-bid auction up until its end, all of the payoff-relevant

events in the auction occur through clinching. The cumulative quantity of clinched units for bidderi at time (and price) t is given by equations (2) and (3). Observe that the right side of equation (2)is independent of bidder is actions; hence, changing ones own bid strategy can have no effect onpayoff, except to the extent that: (i) it leads rival bidders to respond; or (ii) it determines ones ownnal quantity x*i.

Since marginal utilities were assumed (weakly) diminishing, the sincere bidding strategy given



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by equation (8) always yields monotonically nonincreasing quantities over time. Moreover, sin-cere bidding by bidder i always yields a nal price p* and nal quantity x*i satisfying x*iarg max xi X i{U i( xi) p* xi}.

If all rival bidders j i bid sincerely, then rivals never respond to bidder is strategy, exceptthrough price. Hence, sincere bidding is a mutual best response for every bidderfor everyrealization of utilities and after every historyand hence it is an ex post perfect equilibrium. Giventhe sincere bids of equation (8) and the payoff equation (7), it always yields the efcient outcomeof the Vickrey auction. Moreover, with no bid information, a rival cannot distinguish between twostrategies of bidder i, except to the extent that one or the other ends the auction. Hence, changingones own bid strategy cannot lead rivals using any strategy to respond. We conclude that sincerebidding is a weakly dominant strategy in the auction with no bid information.

PROOF OF THEOREM 2:First, we provide an order of elimination that yields sincere bidding as the outcome of iterated

weak dominance. We begin with the last period, T . Since bidders marginal valuations are assumedto be bounded by u T , each bidder wishes to minimize the number of units won at time T . Given

that the rationing rules in case of over- or under-subscription are monotonically increasing in thenal bids (see footnotes 17 and 18), the sincere bids xiT C i

T 1 weakly dominate all insincere bids xi

T C iT 1 , and so all strategies specifying insincere bids at time T can be eliminated. Now suppose

that with k iterations of weak dominance, all strategies other than sincere bidding have already beeneliminated at times t T k 1, ... , T . Then the choice of xi

T k can have no effect on thesubsequent bidding by opponents. By the full support assumption, there is a positive probability thatbidder is opponents have valuations leading them each: (i) to bid this period in a neighborhood of their maximum allowable bids, i.e., x j

T k x jT k 1 , for all j i; and (ii) to bid next period in

a neighborhood of their minimum allowable bids, i.e., x jT k 1 C j

T k , for all j i. If xiT k is

greater than bidder is sincere demand, then in t

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