A Dynamic Auction for Differentiated Items Under Price Rigidities

CentER Discussion Paper Series No. 2007-26

10 Pages Posted: 16 Jun 2007

See all articles by Dolf Talman

Dolf Talman

Tilburg University - Department of Econometrics & Operations Research

Zaifu Yang

Yokohama National University - Faculty of Business Administration; Tilburg University - Department of Econometrics & Operations Research

Date Written: April 2007

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.

Keywords: ascending auction, multi-item auction, constrained equilibrium, price rigidities, rationing

JEL Classification: D44

Suggested Citation

Talman, Dolf J. J. and Yang, Zaifu, A Dynamic Auction for Differentiated Items Under Price Rigidities (April 2007). CentER Discussion Paper Series No. 2007-26, Available at SSRN: https://ssrn.com/abstract=993095 or http://dx.doi.org/10.2139/ssrn.993095

Dolf J. J. Talman (Contact Author)

Tilburg University - Department of Econometrics & Operations Research ( email )

Tilburg, 5000 LE
Netherlands
+31 13 466 2346 (Phone)

Zaifu Yang

Yokohama National University - Faculty of Business Administration ( email )

79-4 Tokiwa-dai Hodogaya-ku
Yokohama, Kanagawa, 2408501
Japan

Tilburg University - Department of Econometrics & Operations Research ( email )

P.O. Box 90153
5000 LE Tilburg
Netherlands

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