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Auctions of homogeneous goods: a case for pay-as-bid


Pycia, Marek; Woodward, Kyle (2021). Auctions of homogeneous goods: a case for pay-as-bid. Discussion Paper Series 15656, Centre for Economic Policy Research.

Abstract

The pay-as-bid (or discriminatory) auction is a prominent format for selling homogenous goods such as treasury securities and commodities. We prove the uniqueness of its 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), allowing for asymmetric information. 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, under assumptions commonly imposed in empirical work, the two formats are revenue and welfare equivalent.

Abstract

The pay-as-bid (or discriminatory) auction is a prominent format for selling homogenous goods such as treasury securities and commodities. We prove the uniqueness of its 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), allowing for asymmetric information. 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, under assumptions commonly imposed in empirical work, the two formats are revenue and welfare equivalent.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Language:English
Date:11 January 2021
Deposited On:15 Feb 2021 16:10
Last Modified:15 Feb 2021 16:10
Series Name:Discussion Paper Series
Number of Pages:87
ISSN:0265-8003
OA Status:Closed
Official URL:https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15656#

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