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Almost common value auctions: more equilibria

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  • Gisèle Umbhauer
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    Abstract

    In almost common value auctions, even a very small private payoff advantage is usually supposed to have an explosive effect on the outcomes in a second- price sealed-bid auction. According to Bikhchandani (1988) and Klemperer (1997) the large set of equilibria obtained for common value auction games drastically shrinks, so that the advantaged player always wins the auction, at a price that sharply decreases the seller’s payoff. Yet this result has not been observed experimentally. In this paper, we show that Bikhchandani’s equilibria are not the only equilibria of the game. By allowing bids to not continuously depend on private information, we establish a new family of perfect equilibria with nice properties: the advantaged bidder does no longer win the auction regardless of her private information, she may pay a much higher price than in Bikhchandani’s equilibria, there is no ex post regret for both the winner and the looser, and the equilibria give partial support to some naïve behaviour observed experimentally.

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    Bibliographic Info

    Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2011-10.

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    Date of creation: 2011
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    Handle: RePEc:ulp:sbbeta:2011-10

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    Keywords: common value auctions; second-price sealed-bid auctions; Nash equilibrium; perfect equilibrium.;

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