Classical result in the theory of auctions about the division of expected social
surplus among risk-neutral bidders and a risk-neutral bid-taker. Whenever the bidders have
independent private valuations for the resource in sale, all auction formats lead to the same
expected revenue to the bid-taker, and to the same expected profits of the bidders, which award
the object to the bidder that submits the highest bid - regardless of the specific payment rule
of the auction.
In particular, the equilibrium expected payments in the first price sealed bid auction
or the Dutch auction are the same as in the second price sealed bid auction,
in the English auction, or in any all pay auction. The revenue equivalence
theorem shows that in terms of the objective functions of risk neutral strategic traders which have
independent private information, all 'reasonable' auction formats are equivalent exchange
mechanisms.
This equivalence extends to auctions of multiple identical goods if the bidder have unit demands.
It does not hold, however, in common value auctions, with risk-averse traders, or in
auction markets of multiple goods when the bidders bid for more than one item.
