Almost common value auctions and discontinuous equilibria

Gisèle Umbhauer ()
Additional contact information
Gisèle Umbhauer: BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique

Post-Print from HAL

Abstract: In almost common value auctions, even a small private payoff advantage is usually supposed to have an explosive effect on the outcomes in a second-price sealed-bid common value auction. According to Bikhchandani (1988) and Klemperer (1998) the large set of equilibria obtained for common value auction games drastically shrinks, so that the advantaged player always wins the auction, at a price that sharply decreases the seller's payoff. Yet this result has not been observed experimentally. In this paper, we show that Bikhchandani's equilibria are not the only equilibria of the game. By introducing discontinuities in the bids, we establish a new family of perfect equilibria with interesting properties, among them: (i) the advantaged bidder does no longer win the auction regardless of her private information, (ii) she may pay a much higher price than in Bikhchandani's equilibria, (iii) there is no ex-post regret, (iv) the intersection with level-k reasoning is not empty. We also show that a private advantage limits the number of possible discontinuities: one can introduce any number of discontinuities in the common value auction, but this is not possible in presence of a private advantage.

Keywords: Common value auctions; Second-price sealed-bid auctions; Nash equilibrium; Perfect equilibrium; Level-k reasoning (search for similar items in EconPapers)
Date: 2015-02
Note: View the original document on HAL open archive server: https://hal.univ-lorraine.fr/hal-01735849v1
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Annals of Operations Research, 2015, 225 (1), pp.125-140. ⟨10.1007/s10479-013-1377-5⟩

Downloads: (external link)
https://hal.univ-lorraine.fr/hal-01735849v1/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01735849

DOI: 10.1007/s10479-013-1377-5

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().