DP7395 The Product-Mix Auction: a New Auction Design for Differentiated Goods

Author(s): Paul Klemperer
Publication Date: August 2009
Date Revised: December 2009
Keyword(s): central banking, multi-object auction, simultaneous ascending auction, TARP, term auction, treasury auction
JEL(s): D44, E58
Programme Areas: Public Economics, Financial Economics, Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7395

I describe a new static (sealed-bid) auction for differentiated goods - the "Product-Mix Auction". Bidders bid on multiple assets simultaneously, and bidtakers choose supply functions across assets. The auction yields greater efficiency, revenue, information, and trade than running multiple separate auctions. It is also often simpler to use and understand, and less vulnerable to collusion, than a simultaneous multiple round auction. I designed it after the 2007 Northern Rock bank-run to help the Bank of England fight the credit crunch; in 2008 the U.S. Treasury planned using a related design to buy "toxic assets"; it may be used to purchase electricity.