Bid Costs and Endogenous Bid Caps

Arieh Gavious (), Benny Moldovanu () and Aner Sela

No 01-19, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: We study contests where several privately informed agents bid for a price. All bidders bear a cost of bidding that is an increasing function of their bids, and, moreover, bids may be capped. We show that, regardless of the number of bidders, if agents have linear or concave cost functions then setting a bid cap is not profitable for a designer who wishes to maximize the average bid. On the other hand, if agents have convex cost functions (i.e. an increasing marginal cost) then affectively capping the bids is profitable for a designer facing a sufficiently large number of bidders.

Pages: 23 pages
Date: 2000-09-27
New Economics Papers: this item is included in nep-gth and nep-reg
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Related works:
Journal Article: Bid Costs and Endogenous Bid Caps (2002)
Working Paper: Bid costs and endogenous bid caps (2000)
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