ON THE COMPLETE INFORMATION FIRST-PRICE AUCTION AND ITS INTUITIVE SOLUTION

Jose Alcalde and Matthias Dahm

International Game Theory Review (IGTR), 2011, vol. 13, issue 03, 353-361

Abstract: Despite the popularity of auction theoretical thinking, it appears that no one has presented an elementary equilibrium analysis of the complete information first-price sealed-bid auction mechanism when the bidding space has a finite grid. This paper aims to remedy that omission. We show that there always exists a "high price equilibrium" which can be considered "the intuitive solution" (an agent with the highest valuation wins the auction bidding at the second highest valuation). Although there might be other "low price equilibria," we also show that when there are two bidders "the intuitive solution" is the unique limiting equilibrium when the grid size goes to zero and ties are randomly broken.

Keywords: First-price auctions; undominated Nash equilibria; C72; D74 (search for similar items in EconPapers)
JEL-codes: B4 C0 C6 C7 D5 D7 M2 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Working Paper: On the Complete Information First--Price Auction and its Intuitive Solution (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:wsi:igtrxx:v:13:y:2011:i:03:n:s0219198911003040

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DOI: 10.1142/S0219198911003040

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