A Dynamic Auction for Differentiated Items under Price Rigidities

A.J.J. Talman, Z.F. Yang

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Abstract

A number of heterogeneous items are to be sold to several bidders. Each bidder demands at most one item. The price of each item is not completely flexible and is restricted to some admissible interval. In such a market economy with price rigidities, a Walrasian equilibrium usually fails to exist. To facilitate the allocation of items to the bidders, we propose an ascending auction with rationing that yields a constrained Walrasian equilibrium outcome. The auctioneer starts with the lower bound price vector that specifies the lowest admissible price for each item, and each bidder responds with a set of items demanded at those prices. The auctioneer adjusts prices upwards for a minimal set of over-demanded items and chooses randomly a winning bidder for any item if the item is demanded by several bidders and its price has reached its highest admissible price. We prove that the auction finds a constrained Walrasian equilibrium outcome in a finite number of steps.
Original languageEnglish
Place of PublicationTilburg
PublisherOperations research
Number of pages10
Volume2007-26
Publication statusPublished - 2007

Publication series

NameCentER Discussion Paper
Volume2007-26

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Keywords

  • Ascending auction
  • multi-item auction
  • constrained equilibrium
  • price rigidities
  • rationing

Cite this

Talman, A. J. J., & Yang, Z. F. (2007). A Dynamic Auction for Differentiated Items under Price Rigidities. (CentER Discussion Paper; Vol. 2007-26). Tilburg: Operations research.