Auctions of Homogeneous Goods with Increasing Returns: Experimental Comparison of Alternative “Dutch” Auctions

Most business-to-business (B2B) auctions are used to transact large quantities of homogeneous goods, and therefore use multiunit mechanisms. In the B2B context, bidders often have increasing returns to scale, or synergies. We compare two commonly used auction formats for selling multiple homogeneous objects, both sometimes called “Dutch” auctions, in a set of value environments that include synergies and potentially subject bidders to the “exposure” and “free-riding” problems. We find that the descending-price auction, best known for its use in the Dutch flower auctions, is robust and performs well in a variety of environments, although there are some situations in which the ascending uniform-price auction similar to the one used by eBay better avoids the free-riding problem. We discuss the factors that influence each mechanism's performance in terms of the overall efficiency, the informational requirements, the seller's revenue, and the buyer's profit.