On the failure of the linkage principle in multi-unit auctions
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It is shown that the linkage principle (Milgrom and Weber (1982)) does not extend to the multi-unit auction setting. An analysis of the equilibium bidding strategies is carried out for the general two-agent/two-unit Vickrey auction in order to provide economic insight into the nature of the failure. In addition, an explicit counterexample is provided. ∗ Both authors acknowledge support from the Binational Science Foudation (grant#9500023/1). Reny also acknowledges support from the National Science Foundation (grant# SBR-970932), and the University of Pittsburgh’s Faculty of Arts and Sciences.
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