Sequential auctions with ambiguity

Gagan Ghosh and Heng Liu

Journal of Economic Theory, 2021, vol. 197, issue C

Abstract: This paper studies sequential auctions in the presence of ambiguity about the distribution of values. Using the multi-self approach to accommodate the possible time inconsistency that arises with dynamic bidding for maxmin bidders, we characterize the unique symmetric and monotone equilibrium in closed form. We show that the equilibrium prices are a supermartingale if the worst-case beliefs reverse hazard rate dominate the true distribution of values, providing an explanation for the well-documented puzzle “declining price anomaly” in sequential auctions. Importantly, the sufficient condition for declining prices allows for dynamic inconsistency. We also propose a non-parametric procedure to identify bidders' values and beliefs from auction data. The model delivers rich testable implications: on the practical side, declining prices imply that bidders' worst-case beliefs first-order stochastically dominate the true distribution of values; on the theoretical side, dynamic inconsistency generates history dependence in bidding strategies and possibly higher revenues for the seller.

Keywords: Sequential auctions; Declining prices; Ambiguity; Dynamic inconsistency (search for similar items in EconPapers)
JEL-codes: C72 C73 D44 D81 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:197:y:2021:i:c:s0022053121001411

DOI: 10.1016/j.jet.2021.105324

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