Equilibrium selection in interdependent value auctions

Elnaz Bajoori and Dries Vermeulen
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Elnaz Bajoori: University of Bath

No 69/18, Department of Economics Working Papers from University of Bath, Department of Economics

Abstract: In second-price auctions with interdependent values, bidders do not necessarily have dominant strategies. Moreover, such auctions may have many equilibria. In order to rule out the less intuitive equilibria, we define the notion of distributional strictly perfect equilibrium (DSPE) for Bayesian games with infinite type and action spaces. This equilibrium is robust against arbitrary small perturbations of strategies. We apply DSPE to a class of symmetric second-price auctions with interdependent values and show that the efficient equilibrium defined by Milgrom \cite{Milgrom81} is a DSPE, while a class of less intuitive, inefficient, equilibria introduced by Birulin \cite{Birulin2003} is not.

Date: 2017-12
New Economics Papers: this item is included in nep-des, nep-gth and nep-mic
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Journal Article: Equilibrium selection in interdependent value auctions (2019)
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