Corners in Auctions

Different pricing rules in multiunit auctions provide different incentives for a bidder to corner the auction and thus require different levels of effort from the seller to deter cornering. We consider three different types of auctions: the pay-your-bid or "discriminatory" auction commonly used by the US Treasury, the lowest-winning-bid uniform-price auction used in the current Treasury experiment, and the highest-losing-bid uniform-price auction considered by Vickrey almost four decades ago. We show that the pay-your-bid auction provides the greatest incentive to corner the market, that the experimental Treasury auction provides less incentive, and that the highest-losing-bid uniform-price auction provides the least. Arguably, the less the incentive to corner the market, the easier it will be for sellers to deter cornering, and the greater their expected revenue (net of the cost to deter cornering) will be in otherwise expected-revenue-equivalent auctions.