A Note on Revenue Maximization and Efficiency in Multi-Object Auctions

Philippe Jehiel and Benny Moldovanu ()

No 99-73, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: We consider an auction with risk neutral agents having independent private valuations for several heterogenous objects. Most of the literature on revenue-maximizing auctions has focused on the sale of one good or on the sale of several identical units (thus yielding one-dimensional informational models). Two reasons for inefficiency in revenue-maximizing auctions have been identified 1) The (monopolist) seller can increase revenue by restricting supply. 2) A revenue maximizing seller will sell to bidders with the highest ''virtual'' valuations (see Myerson, 1981). Virtual valuations are adjusted valuations that take into account bidders' informational rents, and depend on the distribution of private information. Asymmetries among bidders (and possibly other properties of these distributions) drive a wedge between virtual and true valuations, leading to inefficiencies (see Ausubel and Cramton, 1998 for a recent discussion of these issues). Our purpose here is to illustrate in the simplest possible way that a revenue-maximizing seller of several heterogenous objects has incentives to ''misallocate'' the sold objects even in symmetric settings, and no matter what the (symmetric) function governing the distribution of private information is. This inefficiency result should be contrasted with the efficiency result in Armstrong (1998) that applies only to some cases with discrete distributions of valuations.

Pages: 4 pages
Date: 1999-05-15
New Economics Papers: this item is included in nep-ind and nep-mic
Note: Financial Support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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Related works:
Journal Article: A note of revenue maximization and efficiency in multi-object auctions (2001)
Working Paper: A note on revenue maximization and efficiency in multi-object auctions (1999)
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