Auction Theory, 2nd Edition

54 Qualifications and Extensions

4.4 RESALE AND EFFICIENCY

In the previous section we saw that asymmetries among bidders lead to inef-

ficient allocations in first-price auctions—with positive probability the winner

of the auction is not the person who values the object the most. Achieving an

efficient allocation may well be an important, or even primary, policy goal of

the seller, especially if the seller is a government undertaking the privatization

of some public asset. This seems to imply that such a seller should use an effi-

cient auction—with private values, say a second-price auction—even if, as we

have seen, it may bring lower revenues than an inefficient one, say a first-price

auction. An argument against this point of view, in the Chicago school ...