What Price Coordination? The Efficiency-Enhancing Effect of Auctioning the Right to Play

Vincent P. Crawford and Bruno Broseta

University of California at San Diego, Economics Working Paper Series from Department of Economics, UC San Diego

Abstract: A model is proposed to explain the results of recent experiments in which subjects repeatedly played a coordination game, with the right to play auctioned each period in a larger group. Subjects invariably bid the market-clearing price to a level recoverable only in the efficient equilibrium and then converged to that equilibrium, although subjects who played the game without auctions always converged to inefficient equilibria. The efficiency-enhancing effect of auctions is reminiscent of forward induction, but is not explained by equilibrium refinements. The model explains it by showing how strategic uncertainty interacts with history-dependent learning dynamics to determine equilibrium selection.

* University of Arizona

Date: 1997-01
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Journal Article: What Price Coordination? The Efficiency-Enhancing Effect of Auctioning the Right to Play (1998)
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