The Korean Economic Review
Efficiency and Revenue in Asymmetric Auctions
Kyungmin Kim (Emory University) and Youngwoo Koh (Hanyang University)Year 2019Vol. 35No. 2
We study the efficiency and revenue properties of first- and second-price auctions in an environment where bidders’ values are drawn from different binary distributions. Weidentify a necessary and sufficient condition for a first-price auction to induce an efficient allocation. The condition reveals the source of allocative inefficiencies in asymmetric first price auctions. We further show that the seller’s revenue is higher in a second-price auction than it is in a first-price auction whenever allocations in the two auction formats are efficient. We highlight how the difference in different bidder types’ beliefs induces the results.