Are Disadvantaged Bidders Doomed in Ascending Auctions?

Marco Pagnozzi

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: A bidder is said to be advantaged if she has a higher expected valuation of the auction prize than her competitor. When the prize has a common-value component, a bidder competing in an ascending auction against an advantaged competitor bids especially cautiously and, hence, the advantaged bidder wins most of the time. However, contrary to what is often argued, a disadvantaged bidder still wins with positive probability, even if his competitor.s advantage is very large and even if the disadvantaged bidder has the lowest actual valuation ex-post. Therefore, the disadvantaged bidder has an incentive to participate in the auction, and the presence of a bidder with a small advantage does not have a dramatic e¤ect on the seller.s revenue.

Keywords: common-value auctions; asymmetric bidders (search for similar items in EconPapers)
JEL-codes: D44 (search for similar items in EconPapers)
Date: 2006-11-01
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Published in Journal of Industrial Economics, 2008, Vol. 56, 3, p. 683.

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Related works:
Journal Article: ARE DISADVANTEGED BIDDERS DOOMED IN ASCENDING AUCTIONS? (2008)
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