When and why not to auction

Abstract

Standard auctions are known to be a revenue-maximizing way to sell an object under broad conditions when buyers are symmetric and have independent private valuations. We show that when buyers have interdependent valuations, auctions may lose their advantage, even if symmetry and independence of information are maintained. In particular, simple alternative selling mechanisms that sometimes allow a buyer who does not have the highest valuation to win the object will in general increase all buyers' willingness to pay, possibly enough to offset the loss to the seller of not always selling to the buyer with the greatest willingness to pay. © 2006 Springer-Verlag.