Ernesto Rivera Mora, University of Colorado Boulder

Paper: Optimal Scaling Auctions: A Consumer Theory Deconstruction

Abstract: We study scaling auctions in procurement settings with risk-averse sellers, showing that bidding behavior follows an auxiliary Hicksian demand in which scoring weights act as prices. As a result, changes in weights induce a pure substitution effect, providing a rationale for skewed bidding behavior observed in empirical studies. By using the Hicksian properties, we characterize the optimal scaling auction and show that it outperforms cash auctions if and only if marginal costs are sufficiently high. Additionally, we identify a hybrid auction format that outperforms both scaling and cash auctions.