I don’t want to argue pro or contra, but thought it would it be helpful to dump some simple facts about auctions, hopefully somehow structured. Sometimes Ethereum discourse seems a bit un-informed by the technical game theory literature.
First of all, first-price sealed bid auctions are not better or worse than open bid auctions or second-price sealed bid auctions. It depends on context and your objectives. So what does this mean? Sealed bidding should be used in environments where there are relative few bidders, we fear that these bidders could coordinate/collude and we want to maximize revenue. The argument is very simple: through their public bids, bidders can signal to each other something about their willingness to pay, hence it makes collusion easier. See here why that matters in practice.
Do we actually want to maximize revenue in block auctions though? As a solo staker I would say yes :D, but my personal interests aside, I think there doesn’t seem to be a clear case for maximizing proposer welfare. What we should aim for is efficiency: we want to build the most valuable blocks. Do sealed-bid and open-bid auctions differ in efficiency? Usually not, but maybe in our case there are some efficiency difference due to up-stream effects, which I come to later.
Regarding entry: I don’t think one can make a case of open-bid auctions being friendlier to new entrants. Usually the opposite. In our case, however, the deposit requirements on builders for in-protocol bidding might increase barriers to entry, but that is a consideration orthogonal to the auction format.
Finally, regarding first vs. second price auction: the argument for second price because of strategic simplicity only works if the auction is of the independent private value type. In block auctions we have a mixed case: there is private value from exclusive flow and common value.
The term “price discovery“ gets thrown around a lot. What do we actually mean by it? We have an unknown common (!) value e.g. an asset price and we want to use an auction to incorporate all available information to determine this value. Do we have price discovery in the block auction at the moment? I would say very little: price discovery happens offchain e.g. on Binance, and the chain just syncs to that external state. If there is on-chain price discovery. it happens on the searcher-builder level, so whether one of two competing bundles is included might contribute to price discovery and that only factors in indirectly into the block auction. For integrated searcher-builders this might be a bit different, as they might express their expectation of value in their block auction bid. If price discovery is a concern and we have enough competition in the auction, an open bid auction is preferable. The argument is again simple: public bids contain information about the common value and bidders can react to that. Is this happening in block auctions though? Not too much I would say.
Ethereum block auctions have the particular feature that there are up-stream effects. Searchers can multi-plex their bundles. I think the strongest case for open bidding is that bids give a signal to searchers where to send their bundles. And that might help us build the most efficient blocks, because it helps overcome flow fragmentation.
Finally, we should also care about latency. Open-bidding leads to more frequent bid updates, hence latency optimization is more important. I think that is a point against open-bid auction. Moreover, if the auctioneer is the proposer rather than a relay, co-location becomes harder, because the proposer changes from round to round. That seems to be a more desirable outcome in terms of geo-decentralization.