Bray Theory Workshop
This paper proposes a new auction, the group auction, for environments where the interdependencies in the valuations of the buyers can be captured by partitioning the set of the buyers into groups. Namely, I assume that valuations uncertain but highly correlated among buyers in the same group, while less correlated among buyers from different groups. This characterization is applicable to many situations including cases where buyers can be grouped according to how they want to utilize the object; for example, if there are potentially multiple uses of the object, or if buyers differ in terms of the type of technology available to them. The group auction is easy to implement (and to decentralize) and guarantees ex-post efficiency, even when valuations within a group are identical, violating the single-crossing property. Importantly, the group auction aggregates information in the limit: prices converge in probability to the true value of the object for the highest valuation buyer when the number of groups and the number of buyers in each group go to infinity. Furthermore, the group auction generates higher revenues than the second price auction when there are sufficiently many buyers in each group.