New Auction Model Reveals Hidden Revenue Advantage, Changing Auction Dynamics Forever
The article presents a new model for English auctions that is more realistic than previous ones. In this model, the auctioneer alternates between recognizing two bidders who agree to pay the current price. Other bidders are only considered when a recognized bidder drops out. The number of dropouts is random, making it harder to predict who has valuable information. This uncertainty reduces the advantage of English auctions over second-price auctions. Ultimately, the simpler formula used in second-price auctions may be a better approximation for English auctions.