The tension between allocative efficiency and information aggregation is explored in the context of an auction: k identical objects of unknown quality are auctioned off to n bidders whose tastes affect their valuation of an object of given quality. Bidders receive a signal about the quality of the objects. The k highest bidders get an object and pay a price equal to the k + 1st highest bid. We find conditions under which, in the limit, objects are allocated efficiently to those with the highest tastes, and price converges in probability to the value of an object to the marginal taste type.
ASJC Scopus subject areas
- Economics and Econometrics