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Equilibria in Second Price Auctions with Participation Costs

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Author Info
Guofu Tan
Okan Yilankaya

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Abstract

We investigate equilibria of sealed-bid second price auctions with bidder participation costs in the independent private values environment. We focus on equilibria in cutoff strategies (participate and bid the valuation iff it is greater than the cutoff), since if a bidder finds it optimal to participate, she cannot do better than bidding her valuation. When bidders are symmetric, concavity (strict convexity) of the cumulative distribution function from which the valuations are drawn is a sufficient condition for uniqueness (multiplicity) within this class. We also study a special case with asymmetric bidders and show that concavity/convexity plays a similar role.

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File URL: http://www.usc.edu/dept/LAS/economics/IEPR/Working%20Papers/IEPR_05.7_%5BTan,Yilankaya%5D.pdf
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File Function: First version, 2005
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Publisher Info
Paper provided by Institute of Economic Policy Research (IEPR) in its series IEPR Working Papers with number 05.7.

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Length: 18 pages
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:scp:wpaper:05-7

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Related research
Keywords: Second price auctions; participation cost; entry fee; multiplicity of equilibria;

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Find related papers by JEL classification:
C62 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Existence and Stability Conditions of Equilibrium
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. King, Ian & Welling, Linda & Preston McAfee, R., 1992. "Investment decisions under first and second price auctions," Economics Letters, Elsevier, vol. 39(3), pages 289-293, July. [Downloadable!] (restricted)
  2. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57. [Downloadable!] (restricted)
  3. Guofu Tan & Okan Yilankaya, 2005. "Ratifiability of Efficient Collusive Mechanisms in Second-Price Auctions with Participation Costs," IEPR Working Papers 05.15, Institute of Economic Policy Research (IEPR). [Downloadable!]
    Other versions:
  4. Harstad, Ronald M, 1990. "Alternative Common-Value Auction Procedures: Revenue Comparisons with Free Entry," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 421-29, April. [Downloadable!] (restricted)
  5. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347. [Downloadable!] (restricted)
  6. Stegeman, Mark, 1996. "Participation Costs and Efficient Auctions," Journal of Economic Theory, Elsevier, vol. 71(1), pages 228-259, October. [Downloadable!] (restricted)
  7. Steven A. Matthews, 1995. "A Technical Primer on Auction Theory I: Independent Private Values," Discussion Papers 1096, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  8. Blume, Andreas & Heidhues, Paul, 2004. "All equilibria of the Vickrey auction," Journal of Economic Theory, Elsevier, vol. 114(1), pages 170-177, January. [Downloadable!] (restricted)
  9. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June. [Downloadable!] (restricted)
  10. Celik, Gorkem & Yilankaya, Okan, 2005. "Optimal Auctions with Simultaneous and Costly Participation," Micro Theory Working Papers celik-05-05-09-03-55-40, Microeconomics.ca Website, revised 09 Jun 2006. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Guofu Tan & Okan Yilankaya, 2005. "Ratifiability of Efficient Collusive Mechanisms in Second-Price Auctions with Participation Costs," IEPR Working Papers 05.15, Institute of Economic Policy Research (IEPR). [Downloadable!]
    Other versions:
  2. Lu, Jingfeng, 2006. "Endogenous entry and auctions design with private participation costs," MPRA Paper 934, University Library of Munich, Germany. [Downloadable!]
  3. Andreas Blume & Paul Heidhues & Jonathan Lafky & Johannes Münster & Meixia Zhang, 2006. "All Nash Equilibria of the Multi-Unit Vickrey Auction," Discussion Papers 116, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
    Other versions:
  4. Lu, Jingfeng, 2006. "Auctions design with private costs of valuation discovery," MPRA Paper 943, University Library of Munich, Germany. [Downloadable!]
  5. Celik, Gorkem & Yilankaya, Okan, 2005. "Optimal Auctions with Simultaneous and Costly Participation," Micro Theory Working Papers celik-05-05-09-03-55-40, Microeconomics.ca Website, revised 09 Jun 2006. [Downloadable!]
  6. Hongbin Cai & J. Vernon Henderson & Qinghua Zhang, 2009. "China's Land Market Auctions: Evidence of Corruption," NBER Working Papers 15067, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Jingfeng Lu, 2009. "Why a Simple Second-Price Auction Induces Efficient Endogenous Entry," Theory and Decision, Springer, vol. 66(2), pages 181-198, February. [Downloadable!] (restricted)
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