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Trilateral escalation in the dollar auction

Author

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  • Fredrik Ødegaard

    (The University of Western Ontario)

  • Charles Z. Zheng

    (The University of Western Ontario)

Abstract

We find a new set of subgame perfect equilibria in a dollar auction that involves three active bidders. The player who falls to the third place continues making efforts to catch up until his lag from the frontrunner widens to a critical distance beyond which the catchup efforts become unprofitable. At that juncture the second-place player pauses bidding thereby bettering the chance for the third-place one to leapfrog to the front so as to perpetuate the trilateral rivalry. Once two players have emerged as the top two rivals, any such trilateral rivalry equilibrium produces larger total surplus for the three players than its bilateral rivalry counterpart does, where anyone who falls to the third place immediately drops out.

Suggested Citation

  • Fredrik Ødegaard & Charles Z. Zheng, 2023. "Trilateral escalation in the dollar auction," International Journal of Game Theory, Springer;Game Theory Society, vol. 52(1), pages 195-230, March.
    • Handle: RePEc:spr:jogath:v:52:y:2023:i:1:d:10.1007_s00182-022-00815-2
    DOI: 10.1007/s00182-022-00815-2
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    References listed on IDEAS

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    More about this item

    Keywords

    Dollar auction; Three-player bidding dynamics; Leapfrog;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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