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Affiliation, Equilibrium Existence and Revenue Ranking of Auctions

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  • Luciano De Castro
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    Abstract

    Affiliation has been a prominent assumption in the study of economic models with statistical dependence. Despite its large number of applications, especially in auction theory, affiliation has limitations that are important to be aware of. This paper shows that affiliation is a restrictive condition and the intuition usually given for its adoption may be misleading. Also, other usual justifications for affiliation are not compelling. Moreover, some implications of affiliation — namely, equilibrium existence in first-price auctions and the revenue dominance of second-price auctions — do not generalize to other definitions of positive dependence. JEL Classification Numbers: C62, C72, D44, D82.

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    Bibliographic Info

    Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1530.

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    Date of creation: 01 Dec 2010
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    Handle: RePEc:nwu:cmsems:1530

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    Related research

    Keywords: affiliation; positive dependence; statistical dependence of types; conditional independence; de Finetti’s theorem; minimally informative random variable; auctions; pure strategy equilibrium; revenue ranking.;

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    18. Motty Perry & Philip J. Reny, 1999. "On The Failure of the Linkage Principle in Multi-Unit Auctions," Econometrica, Econometric Society, vol. 67(4), pages 895-900, July.
    19. Athey, Susan, 2001. "Single Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information," Econometrica, Econometric Society, vol. 69(4), pages 861-89, July.
    20. Paul Klemperer, 2004. "What Really Matters in Auction Design, from Auctions: Theory and Practice
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      ," Introductory Chapters, Princeton University Press.
    21. Tong Li & Bingyu Zhang, 2010. "Testing For Affiliation In First-Price Auctions Using Entry Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(3), pages 837-850, 08.
    22. Van Zandt, Timothy & Vives, Xavier, 2003. "Monotone Equilibria in Bayesian Games of Strategic Complementarities," CEPR Discussion Papers 4103, C.E.P.R. Discussion Papers.
    23. James Bergin, 1998. "Common Knowledge With Monotone Statistics," Working Papers 974, Queen's University, Department of Economics.
    24. Luciano I. de Castro, 2007. "Affiliation, equilibrium existence and the revenue ranking of auctions," Economics Working Papers we074622, Universidad Carlos III, Departamento de Economía.
    25. John McMillan, 1994. "Selling Spectrum Rights," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 145-162, Summer.
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      ," Introductory Chapters, Princeton University Press.
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