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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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Related research

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

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  1. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1992. "Rigging the Lobbying Process: An Application of the All- Pay Auction," Papers 9-92-2, Pennsylvania State - Department of Economics.
  2. Moldovanu, Benny & Sela, Aner, 2003. "Patent licensing to Bertrand competitors," International Journal of Industrial Organization, Elsevier, vol. 21(1), pages 1-13, January.
  3. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1991. "The All-Pay Auction With Complete Information," Purdue University Economics Working Papers 1007, Purdue University, Department of Economics.
  4. 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.
  5. Simon, Leo K. & Zame, William R., 1987. "Discontinous Games and Endogenous Sharing Rules," Department of Economics, Working Paper Series qt8n46v2wv, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  6. Kala Krishna & Torben Tranæ s, 2002. "Allocating multiple units," Economic Theory, Springer, vol. 20(4), pages 733-750.
  7. 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.
  8. Chwe, Michael Suk-Young, 1989. "The discrete bid first auction," Economics Letters, Elsevier, vol. 31(4), pages 303-306, December.
  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. 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.
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Cited by:
  1. Alcalde, José & Matthias, Dahm, 2011. "Competition for Procurement Shares," QM&ET Working Papers 11-3, Universidad de Alicante, Departamento de Métodos Cuantitativos y Teoría Económica.
  2. Matthias Dahm & Robert Dur & Amihai Glazer, 2012. "How a Firm Can Induce Legislators to Adopt a Bad Policy," CESifo Working Paper Series 3788, CESifo Group Munich.

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