Sequential Auctions with Multiple Synergies

Abstract

We examine the sequential auctions of nonidentical and synergistically related (complementary/substitutable) objects. The objects are divided into categories, which are collections of substitutable items. Inter-category objects are complements. Bidders demand one unit from each category and aim to create a bundle of inter-category objects. We solve for all equilibria of the game with an exogenous order of sale. We establish that the sequential auction mechanism can achieve efficient outcomes subject to the order in which objects are presented during the auction. Specifically, we show that an efficient outcome is achieved if, in each category, the object that is valued more by both bidders (if any) is auctioned first. We show that the sequential auction mechanism suffers from the exposure problem in the presence of multiple synergies. We establish that the order in which the categories are presented during the auction may affect objects’ selling prices. Specifically, a decreasing trend in selling prices is observed in some of the outcomes.