Preemptive Entry in Sequential Auctions with Participation Cost

Jeongwoo Lee and Jaeok Park
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Jeongwoo Lee: University of Florida
Jaeok Park: Yonsei University

No 2019rwp-141, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: This paper analyzes a scenario in which two objects are sold in sequence at two second-price auctions. There are two bidders, and each bidder's valuations of the two objects are affiliated. Participating in each auction is costly. Bidders decide whether to enter each auction, observing their entry decisions in any previous auction. We study the properties of equilibria and provide a sufficient condition for their existence. Due to affiliation, a bidder's entering the first auction may signal his strong interest in the second object. Hence, a bidder with a higher valuation of the second object tends to participate in the first auction more aggressively in order to preempt the opponent's entry into the second auction. Because of this signaling motive, the sequential auction format can generate higher revenue in the first auction and lower revenue in the second auction than those obtained by the simultaneous counterpart.

Keywords: Sequential auctions; participation cost; preemptive entry; signaling (search for similar items in EconPapers)
JEL-codes: D44 D82 (search for similar items in EconPapers)
Pages: 42pages
Date: 2019-02
New Economics Papers: this item is included in nep-com, nep-des, nep-gth and nep-mic
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