Making Auctions Robust to Aftermarkets

Moshe Babaioff, Nicole Immorlica, Yingkai Li*, Brendan Lucier

*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

1 Scopus citations

Abstract

A prevalent assumption in auction theory is that the auctioneer has full control over the market and that the allocation she dictates is final. In practice, however, agents might be able to resell acquired items in an aftermarket. A prominent example is the market for carbon emission allowances. These allowances are commonly allocated by the government using uniform-price auctions, and firms can typically trade these allowances among themselves in an aftermarket that may not be fully under the auctioneer's control. While the uniform-price auction is approximately efficient in isolation, we show that speculation and resale in aftermarkets might result in a significant welfare loss. Motivated by this issue, we consider three approaches, each ensuring high equilibrium welfare in the combined market. The first approach is to adopt smooth auctions such as discriminatory auctions. This approach is robust to correlated valuations and to participants acquiring information about others' types. However, discriminatory auctions have several downsides, notably that of charging bidders different prices for identical items, resulting in fairness concerns that make the format unpopular. Two other approaches we suggest are either using posted-pricing mechanisms, or using uniform-price auctions with anonymous reserves. We show that when using balanced prices, both these approaches ensure high equilibrium welfare in the combined market. The latter also inherits many of the benefits from uniform-price auctions such as price discovery, and can be introduced with a minor modification to auctions currently in use to sell carbon emission allowances.

Original languageEnglish
Title of host publication14th Innovations in Theoretical Computer Science Conference, ITCS 2023
EditorsYael Tauman Kalai
PublisherSchloss Dagstuhl- Leibniz-Zentrum fur Informatik GmbH, Dagstuhl Publishing
ISBN (Electronic)9783959772631
DOIs
StatePublished - 1 Jan 2023
Externally publishedYes
Event14th Innovations in Theoretical Computer Science Conference, ITCS 2023 - Cambridge, United States
Duration: 10 Jan 202313 Jan 2023

Publication series

NameLeibniz International Proceedings in Informatics, LIPIcs
Volume251
ISSN (Print)1868-8969

Conference

Conference14th Innovations in Theoretical Computer Science Conference, ITCS 2023
Country/TerritoryUnited States
CityCambridge
Period10/01/2313/01/23

Bibliographical note

Publisher Copyright:
© Moshe Babaioff, Nicole Immorlica, Yingkai Li, and Brendan Lucier; licensed under Creative Commons License CC-BY 4.0.

Keywords

  • aftermarkets
  • carbon markets
  • multi-unit auctions
  • posted prices
  • price of anarchy

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