Side-communication yields efficiency of ascending auctions: The two-items case

Ron Lavi, Sigal Oren

Research output: Contribution to journalArticlepeer-review

1 Scopus citations


We analyze a simultaneous ascending auction with anonymous item prices, for two items that are substitutes. This popular format entails increased opportunities for coordination among bidders, since bids are observable and can be used as signaling. This has happened, e.g., in the Netherlands 3G Telecom Auction and in the FCC auctions.While it may seem that such bidding harms economic efficiency, we show that side communication may actually improve efficiency: We describe an ex-post subgame-perfect equilibrium, with limited communication, that is ex-post efficient. In contrast, without communication, we show that there is no ex-post equilibrium which is ex-post efficient in this auction.In this equilibrium, bidders initially report true demands, and then perform a single demand reduction at a certain point, determined using a single message exchanged between the bidders. This limited signaling opportunity resolves the strategic problems of myopic bidding, and may improve the social welfare.

Original languageEnglish
Pages (from-to)439-456
Number of pages18
JournalGames and Economic Behavior
Issue number2
StatePublished - 10 Oct 2012
Externally publishedYes


  • Ex-post efficiency
  • Myopic bidding
  • Signaling
  • Simultaneous ascending auctions

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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