Trilateral escalation in the dollar auction

Fredrik Ødegaard () and Charles Zheng
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Fredrik Ødegaard: The University of Western Ontario

International Journal of Game Theory, 2023, vol. 52, issue 1, No 8, 195-230

Abstract: Abstract We find a new set of subgame perfect equilibria in a dollar auction that involves three active bidders. The player who falls to the third place continues making efforts to catch up until his lag from the frontrunner widens to a critical distance beyond which the catchup efforts become unprofitable. At that juncture the second-place player pauses bidding thereby bettering the chance for the third-place one to leapfrog to the front so as to perpetuate the trilateral rivalry. Once two players have emerged as the top two rivals, any such trilateral rivalry equilibrium produces larger total surplus for the three players than its bilateral rivalry counterpart does, where anyone who falls to the third place immediately drops out.

Keywords: Dollar auction; Three-player bidding dynamics; Leapfrog (search for similar items in EconPapers)
JEL-codes: D44 D74 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s00182-022-00815-2

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