On The Failure of The Linkage Principle in Multi-Unit Auctions * Motty Perry Center for Rationality, The Hebrew University of Jerusalem, Jerusalem, Israel email: motty@sunset.huji.ac.il Philip J. Reny Department of Economics, University of Pittsburgh Pittsburgh, PA 15260 email: reny+@pitt.edu August 1997 Abstract 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#95- 00023/1). Reny also acknowledges support from the National Science Foundation (grant# SBR-970932), and the University of Pittsburgh’s Faculty of Arts and Sciences.