Option values in sequential auctions with time-varying valuations

Amir Ban () and Ron Lavi ()
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Amir Ban: Weizmann Institute of Science
Ron Lavi: Technion, Israel Institute of Technology

International Journal of Game Theory, 2021, vol. 50, issue 1, No 5, 75-104

Abstract: Abstract We investigate second-price sequential auctions of unit-demand bidders with time-variable valuations under complete information. We describe how a bidder figures willingness to pay by calculating option values, and show that when bidders bid their option value, and a condition of consistency is fulfilled, a subgame-perfect equilibrium is the result. With no constraints on valuations, equilibria are not necessarily efficient, but we show that when bidder valuations satisfy a certain constraint, an efficient equilibrium always exists. This result may be extended to a model with arrivals of bidders. We show how the equilibrium allocation, bids, and bidder utilities are calculated in the general case. We prove constructively that a pure subgame-perfect equilibrium always exists, and show how all pure equilibria can be found by the method of option values

Keywords: Sequential auctions; Option value; Bidding equilibrium; Complete information (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s00182-020-00740-2

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