The Complete Information First. Price Auction or the Importance of Being Indivisible
AbstractAbstract Despite the popularity of auction theoretical thinking, it appears that no one has presented an elementary equilibrium analysis of the first-price sealed-bid auction mechanism under complete information. This paper aims to remedy that omission. We show that the existence of pure strategy undominated Nash equilibria requires that the bidding space is not "too divisible" (that is, a continuum). In fact, when bids must form part of a finite grid there always exists a "high price equilibrium". However, there might also be "low price equilibria" and when the bidding space is very restrictive the revenue obtained in these "low price equilibria" might be very low. We discuss the properties of the equilibria and an application of auction theoretical thinking in which "low price equilibria" may be relevant. Keywords: First-price auctions, undominated Nash equilibria. JEL Classification Numbers: C72 (Noncooperative Games), D44 (Auctions).
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Bibliographic InfoPaper provided by Universitat Rovira i Virgili, Department of Economics in its series Working Papers with number 2072/13264.
Date of creation: 2008
Date of revision:
Jocs; Teoria de; Preus -- Fixació; Equilibri (Economia); Nash; Varietats de; 338 - Situació econòmica. Política econòmica. Gestió; control i planificació de l'economia. Producció. Serveis. Turisme. Preus;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
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