On the Complete Information First--Price Auction and its Intuitive Solution
AbstractDespite 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 InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 22306.
Date of creation: 14 Mar 2010
Date of revision:
First-price auctions; undominated Nash equilibria.;
Other versions of this item:
- José Alcalde & Matthias Dahm, 2011. "On The Complete Information First-Price Auction And Its Intuitive Solution," International Game Theory Review (IGTR), World Scientific Publishing Co. Pte. Ltd., vol. 13(03), pages 353-361.
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-02 (All new papers)
- NEP-EXP-2010-05-02 (Experimental Economics)
- NEP-GTH-2010-05-02 (Game Theory)
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