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Competitive Auctions: Theory and Application

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  • John Kennes

    (Institute of Economics, University of Copenhagen)

Abstract

The theory of competitive auctions offers a coherent framework for modelling coordination frictions as a non-cooperative game. The theory represents an advancement over cooperative approaches that make exogenous assumptions about how output is divided between buyers and sellers and about the forces that bring buyers and sellers into local markets. Moreover, unlike price posting models, which fix the terms of trade prior to matching, competitive auction models have a bidding process that allocates the good (or service) to the highest valuation bidder at a price equal to the second highest valuation. Therefore, the competitive auction model is more robust to problems in which there are heterogenous valuations. This paper develops the theory of competitive auctions and applies it to a number of practical problems in microeconomics, labor economics, industrial organization, investment theory and monetary economics.

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Bibliographic Info

Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 04-16.

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Length: 25 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:kud:kuiedp:0416

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References

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  1. Moen, E.R., 1995. "Competitive Search Equilibrium," Memorandum, Oslo University, Department of Economics 37/1995, Oslo University, Department of Economics.
  2. John Kennes & Aaron Schiff, 2003. "The Value of a Reputation System," Industrial Organization, EconWPA 0301011, EconWPA.
  3. John Kennes & Benoit Julien & Ian King, 2002. "The Mortensen Rule and Efficient Coordination Unemployment," Macroeconomics, EconWPA 0206001, EconWPA.
  4. Benoît Julien & John Kennes & Ian King, 2002. "Auctions Beat Posted Prices in a Small Market," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 158(4), pages 548-, December.
  5. Pieter A. Gautier & Jose L. Moraga, 2004. "Strategic Wage Setting and Coordination Frictions with Multiple Applications," Tinbergen Institute Discussion Papers 04-063/1, Tinbergen Institute, revised 16 Aug 2004.
  6. James Albrecht, Pieter Gautier, & Susan Vroman, 2003. "Equilibrium Directed Search with Multiple Application," Working Papers, Georgetown University, Department of Economics gueconwpa~03-03-02, Georgetown University, Department of Economics.
  7. Shouyong Shi, 1998. "Frictional Assignment," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 74, CREFE, Université du Québec à Montréal.
  8. Alain Delacroix & Shouyong Shi, 2006. "Directed Search On The Job And The Wage Ladder," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 651-699, 05.
  9. Shouyong Shi, 1998. "Product Market and the Size-Wage Differential," Working Papers, Queen's University, Department of Economics 972, Queen's University, Department of Economics.
  10. Kenneth Burdett & Shouyong Shi & Randall Wright, 2001. "Pricing and Matching with Frictions," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 109(5), pages 1060-1085, October.
  11. John Kennes & Ian Paul King & Benoit Julien, 2002. "'Residual' Wage Disparity in Directed Search Equilibrium," Macroeconomics, EconWPA 0205003, EconWPA.
  12. Shi, Shouyong, 2006. "Wage differentials, discrimination and efficiency," European Economic Review, Elsevier, Elsevier, vol. 50(4), pages 849-875, May.
  13. Coles, Melvyn G. & Eeckhout, Jan, 2003. "Indeterminacy and directed search," Journal of Economic Theory, Elsevier, Elsevier, vol. 111(2), pages 265-276, August.
  14. Gouge, Randall & King, Ian, 1997. "A Competitive Theory of Employment Dynamics," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 64(1), pages 1-22, January.
  15. Benoît Julien & John Kennes & Ian King, 2005. "Ex post bidding and efficient coordination unemployment," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 38(1), pages 174-193, February.
  16. Kultti, K.K., 1997. "Equivalence of Auctions and Posted Prices," Discussion Paper, Tilburg University, Center for Economic Research 1997-57, Tilburg University, Center for Economic Research.
  17. Benoit Julien & John Kennes & Ian King, 2000. "Bidding for Labor," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 619-649, October.
  18. Klaus Kultti & Antti Miettunen & Juha Virrankoski, 2006. "Physical Search," Journal of Economics, Springer, Springer, vol. 89(3), pages 223-244, December.
  19. Julien Benoit & Kennes John & King Ian Paul, 2001. "Auctions and Posted Prices in Directed Search Equilibrium," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 1(1), pages 1-16, July.
  20. Shi, Shouyong, 2002. "A Directed Search Model of Inequality with Heterogeneous Skills and Skill-Based Technology," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 69(2), pages 467-91, April.
  21. Melanie Cao & Shouyong Shi, 2000. "Coordination, matching, and wages," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 33(4), pages 1009-1033, November.
  22. Jansen, Marcel, 2010. "Job auctions and hold-ups," Labour Economics, Elsevier, Elsevier, vol. 17(3), pages 608-619, June.
  23. Steven J. Davis, 2001. "The Quality Distribution of Jobs and the Structure of Wages in Search Equilibrium," NBER Working Papers 8434, National Bureau of Economic Research, Inc.
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Cited by:
  1. Kennes, John & Schiff, Aaron, 2008. "Quality infomediation in search markets," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 26(5), pages 1191-1202, September.

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