Auction Theory, 2nd Edition

Chapter | Four

Qualifications and

Extensions

The revenue equivalence principle derived in the previous chapter, Proposi-

tion 3.1, is a simple yet powerful result. It constitutes a benchmark of the theory

of private value auctions, whereas all other results in the area constitute a depar-

ture from the revenue equivalence principle and can be measured against it.

Because of its central nature, it is worthwhile to recount the key assumptions

underlying the principle:

1. Independence—the values of different bidders are independently dis-

tributed.

2. Risk neutrality—all bidders seek to maximize their expected profits.

3. No budget constraints—all bidders have the ability to pay up to their

respective values.

4. Symmetry—the values of all bidders are distributed ...