Robust bidding and revenue in descending price auctions

Sarah Auster and Christian Kellner

Journal of Economic Theory, 2022, vol. 199, issue C

Abstract: We study the properties of Dutch auctions in an independent private value setting, where bidders face uncertainty over the type distribution of their opponents and evaluate their payoffs by the worst case from a set of probabilistic scenarios. In contrast to static auction formats, participants in the Dutch auction gradually learn about the valuations of other bidders. We show that the transmitted information can lead to changes in the worst-case distribution and thereby shift a bidder's payoff maximizing exit price over time. We characterise the equilibrium bidding function in this environment and show that the arriving information leads bidders to exit earlier at higher prices. As a result, the Dutch auction systematically generates more revenue than the first-price auction.

Keywords: Auctions; Ambiguity; Consistent planning (search for similar items in EconPapers)
JEL-codes: D44 D82 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:199:y:2022:i:c:s0022053120300685

DOI: 10.1016/j.jet.2020.105072

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