First-price auction with a stochastic head start

Doron Klunover ()
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Doron Klunover: SCE

Review of Economic Design, 2025, vol. 29, issue 4, No 2, 717-725

Abstract: Abstract We consider a two-player first-price sealed-bid auction for an item with a common value, where one player has a head start with a stochastic value. We show that under mild conditions, there exists a unique Bayesian Nash equilibrium in pure strategies in which the player with the head start buys the item at a price equal to its value minus the minimal value of the head start rather than its expected value. Thus, the seller extracts an information rent. Applications of the results in professional sports are considered.

Keywords: First price auction; Hazard rate; Head start; Incomplete information (search for similar items in EconPapers)
JEL-codes: D44 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10058-024-00371-z

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