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On The Complete Information First-Price Auction And Its Intuitive Solution

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  • JOSÉ ALCALDE

    ()
    (Department of Quantitative Methods and Economic Theory and IUDESP, University of Alicante, E-03071 Alicante, Spain)

  • MATTHIAS DAHM

    ()
    (Departament d'Economia and CREIP, Universitat Rovira i Virgili, Av. de la Universitat, 1, E-43204 Reus (Tarragona), Spain)

Abstract

Despite the popularity of auction theoretical thinking, it appears that no one has presented an elementary equilibrium analysis of the complete information first-price sealed-bid auction mechanism when the bidding space has a finite grid. This paper aims to remedy that omission. We show that there always exists a "high price equilibrium" which can be considered "the intuitive solution" (an agent with the highest valuation wins the auction bidding at the second highest valuation). Although there might be other "low price equilibria," we also show that when there are two bidders "the intuitive solution" is the unique limiting equilibrium when the grid size goes to zero and ties are randomly broken.

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Bibliographic Info

Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Game Theory Review.

Volume (Year): 13 (2011)
Issue (Month): 03 ()
Pages: 353-361

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Handle: RePEc:wsi:igtrxx:v:13:y:2011:i:03:p:353-361

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Keywords: First-price auctions; undominated Nash equilibria; C72; D74;

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  1. Dan Kovenock & Michael R. Baye & Casper G. de Vries, 1996. "The all-pay auction with complete information (*)," Economic Theory, Springer, vol. 8(2), pages 291-305.
  2. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1991. "Rigging The Lobbying Process: An Application Of The All- Pay Auction," Purdue University Economics Working Papers 1002, Purdue University, Department of Economics.
  3. Benoit, Jean-Pierre & Krishna, Vijay, 2001. "Multiple-Object Auctions with Budget Constrained Bidders," Review of Economic Studies, Wiley Blackwell, vol. 68(1), pages 155-79, January.
  4. Moldovanu, Benny & Sela, Aner, 1998. "Patent Licensing to Bertrand Competitors," Sonderforschungsbereich 504 Publications 98-21, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  5. Leo K. Simon and William R. Zame., 1987. "Discontinuous Games and Endogenous Sharing Rules," Economics Working Papers 8756, University of California at Berkeley.
  6. Kala Krishna & Torben Tranæ s, 2002. "Allocating multiple units," Economic Theory, Springer, vol. 20(4), pages 733-750.
  7. Chwe, Michael Suk-Young, 1989. "The discrete bid first auction," Economics Letters, Elsevier, vol. 31(4), pages 303-306, December.
  8. Alcalde, José & Dahm, Matthias, 2008. "The Complete Information First. Price Auction or the Importance of Being Indivisible," Working Papers 2072/13264, Universitat Rovira i Virgili, Department of Economics.
  9. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February.
  10. Rapoport, Amnon & Amaldoss, Wilfred, 2004. "Mixed-strategy play in single-stage first-price all-pay auctions with symmetric players," Journal of Economic Behavior & Organization, Elsevier, vol. 54(4), pages 585-607, August.
  11. James J. Anton & Dennis A. Yao, 1989. "Split Awards, Procurement, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 538-552, Winter.
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Cited by:
  1. Alcalde, Jose & Dahm, Matthias, 2011. "Competition for procurement shares," MPRA Paper 32078, University Library of Munich, Germany.
  2. Matthias Dahm & Robert Dur & Amihai Glazer, 2014. "How a firm can induce legislators to adopt a bad policy," Public Choice, Springer, vol. 159(1), pages 63-82, April.

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