On the virtues of the ascending price auction: New insights in the private value setting∗

This paper shows that in a private value setting in which one bidder may at any time reÞne her assessment of her valuation at some positive cost, the ascending price auction induces higher expected welfare than the sealed-bid second price auction does. When the number of bidders is above a threshold, it generates higher revenue as well. In the ascending price auction, a key feature of equilibrium behavior is that as long as there are more than two bidders left, the bidder who may reÞne her information (and has not done so yet) stays above her expected current valuation. This is because she has the option to acquire information when there are two bidders left, and drop out at no cost if her realized valuation turns out to be low. In contrast, in the sealed-bid format, there is no such option and that bidder will bid her expected valuation. ∗We thank seminar participants at CORE for useful comments. †C.E.R.A.S.-E.N.P.C., C.N.R.S. (URA 2036), 28 rue des Saints-Pères 75007 Paris France. e-mail: [email protected] ‡C.E.R.A.S.-E.N.P.C., C.N.R.S. (URA 2036), 28 rue des Saints-Pères 75007 Paris France. e-mail: [email protected] and University College London, e-mail: [email protected].