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The auction method, depending on the type of method used, satisfies Pareto optimality for the following reason: it is always best in an auction to bid your own valuation for a good. In game theory terms, this means that bidding your monetary valution of the good is always a weakly-dominanted strategy. This implies that the winner of the bid will, ignoring monetary constraints, will always be the person with the highest valuation of the good (since they bid the highest). Pareto optimality occurs when no one can be made better off without making someone worse off. When the item belongs to the person/group who values it most, social welfare is optimised (this is also called the Hobbes Theorem). Thus, the auction method, with basic rules, satisfies Pareto optimality by assigning the good to the person who values it most.

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