Valuing product attributes in Vickrey auctions when market substitutes are available

Abstract

This article investigates the weakly dominant strategy in Vickrey auctions when substitutes are available in the market. We find that it is optimal for the consumers to shade their bids so that they obtain at least the same surplus from the auction as they would from the market. For products that would be bought in the market, the optimal bid is the market price. For other products, the optimal bid is below the market price. Furthermore, the full bidding approach is an incentive-compatible method for eliciting consumers' valuations of product attributes if the products in the auction have the same field substitutes. Oxford University Press and Foundation for the European Review of Agricultural Economics 2009; all rights reserved. For permissions, please email journals.permissions@oxfordjournals.org, Oxford University Press.

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