ARE DISADVANTEGED BIDDERS DOOMED IN ASCENDING AUCTIONS?

Marco Pagnozzi

Journal of Industrial Economics, 2008, vol. 56, issue 3, 683-683

Abstract: A bidder is said to be advantaged if she has a higher expected valuation of the auction prize than her competitor. When the prize has a common‐value component, a bidder competing in an ascending auction against an advantaged competitor bids especially cautiously and, hence, the advantaged bidder wins most of the time. However, contrary to what is often argued, a disadvantaged bidder still wins with positive probability, even if his competitor's advantage is very large and even if the disadvantaged bidder has the lowest actual valuation ex‐post. Therefore, the disadvantaged bidder has an incentive to participate in the auction, and the presence of a bidder with a small advantage does not have a dramatic effect on the seller's revenue.

Date: 2008
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https://doi.org/10.1111/j.1467-6451.2008.00358.x

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Working Paper: Are Disadvantaged Bidders Doomed in Ascending Auctions? (2006)
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