ASCENDING AUCTIONS

A key question of auction design is whether to use an ascending-bid or a sealed-bid format. The critical distinction between formats is that an ascending auction provides the bidders with information through th e process of bidding. This information is a two-edged sword. It may st imulate competition by creating a reliable process of price discovery, by reducing the winner's curse, and by allowing efficient aggregation s of items. Alternatively, the information may be used by bidders to e stablish and enforce collusive outcomes. Ex ante asymmetries and weak competition favor a sealed-bid design. In other cases, an ascending au ction is likely to perform better in efficiency and revenue terms. Mor eover, information in an ascending auction can be tailored to limit co llusion. (C) 1998 Elsevier Science B.V. All rights reserved.