Using first-price auctions to sell heterogeneous licenses

Abstract

This paper considers three alternative ways to sell heterogeneous licenses via a first-price format when there is single unit demand. It has been suggested that incorporating a first-price element may bolster competition in this case [Klemperer, Paul D., 2002. What really matters in auction design. Journal of Economic Perspectives, 16, 169–189]. In a controlled laboratory setting, we compare the performance of the simultaneous first-price auction, the sequential first-price auction and the simultaneous descending auction with that of the simultaneous ascending auction. The experiments involve several bidding environments of varying complexity. We find that the simultaneous ascending auction achieves the highest levels of efficiency but also has drawbacks: (i) its revenues are low and variable, (ii) per-license profits vary, and (iii) the incidence of winner's curse outcomes is high. Seller's revenues are highest when the licenses are sold in a sequential first-price auction, in decreasing order of quality.