A dual formulation of bidding behaviour in sealed bid auctions

Sudhir A. Shah
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Sudhir A. Shah: Department of Economics, Delhi School of Economics

No 349, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: We formalise ‘bidding behaviour’ as a bidder’s choice of the ‘mean winning probability’ at the interim stage of first-price and second-price sealed bid auctions. This formulation simplifies and sharpens the anal-ysis of bidding behaviour by virtue of confining it to the unit interval. As an application, we show that the optimal mean winning probability increases if and only if the bidder’s valuation of the prize increases. Our formulation of bidding behaviour is rationalised by duality results showing that optimal mean winning probabilities correspond to opti-mal bid distributions. JEL Code: D44

Keywords: first-price auction; second-price auction; mean winning probability; bidding behaviour; duality (search for similar items in EconPapers)
Pages: 34 pages
Date: 2024-05
New Economics Papers: this item is included in nep-des and nep-gth
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