ON THE ROLE OF DISCRETE BID LEVELS IN ORAL AUCTIONS

Bids in oral auctions are restricted to discrete levels. This paper bo th examines the choice of levels at which bids will be allowed and als o presents a simple model of the role of the discrete levels in biddin g strategy. We consider two different distributions of bidders' values , identifying cases in which revenue is maximized by increasing interv als, by constant intervals, and by decreasing intervals. Moreover, con ditions under which the choice of bid levels that maximizes bid taker revenue also maximizes economic efficiency are developed. We present a model of the economic trade-off between auction duration and step siz e. We consider the previously undiscussed issue of when economically m otivated bidders should skip bid levels and when they should merely ma ke minimum advances and develop a model in which it is equilibrium beh avior always to make the minimum allowed advance.