Auction Theory, 2nd Edition

Chapter | Three

The Revenue

Equivalence Principle

In the previous chapter we saw that regardless of the distribution of values, the

expected selling price in a symmetric first-price auction is the same as that in a

second-price auction. As a result a risk-neutral seller is indifferent between the

two formats. The fact that the expected selling prices in the two auctions are

equal is quite remarkable. The two auctions are not strategically equivalent as

defined in Chapter 1, and in particular instances, the price in one or the other

auction may be higher. This chapter explores the reasons underlying the equality

of expected revenues in Proposition 2.3. In the process, we will discover that

this equality extends beyond first- and second-price auctions to ...