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First-Price Auctions when the Ranking of Valuations

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  • Elmar Wolfstetter

    (Humboldt University of Berlin)

  • Michael Landsberger

    (Hiafa University Israel)

  • Jakob Rubinstei

    (Hiafa University Israel)

  • Shmuel Zamir

    (Hebrew University, Jerusalem)

Abstract

We consider an augmented version of the symmetric private value auction model with independent types. The augmentation, intended to illustrate reality, concerns information bidders have about their opponents. To the standard assumption that every bidder knows his type and the distribution of types is common knowledge we add the assumption that the ranking of bidders' valuations is common knowledge. This set-up induces a particular asymmetric auction model that raises serious technical difficulties. We prove existence and uniqueness of equilibrium in pure strategies in the two bidder case. We also show that the model generally has no analytic solution. If the distribution of valuations is uniform, both bidders bid pointwise more aggressively relative to the standard symmetric case. However, this property does not apply to all distributions of valuations. Finally, we also provide a numerical solution of equilibrium bid functions for the uniform distribution case.

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Bibliographic Info

Paper provided by EconWPA in its series Microeconomics with number 9701004.

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Date of creation: 24 Jan 1997
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Handle: RePEc:wpa:wuwpmi:9701004

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References

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  1. Milgrom, Paul, 1989. "Auctions and Bidding: A Primer," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 3-22, Summer.
  2. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Wolfstetter, Elmar, 1996. " Auctions: An Introduction," Journal of Economic Surveys, Wiley Blackwell, vol. 10(4), pages 367-420, December.
  4. Maskin, Eric & Riley, John, 2000. "Equilibrium in Sealed High Bid Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 439-54, July.
  5. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
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Cited by:
  1. Rene Kirkegaard, 2005. "A Simple Approach to Analyzing Asymmetric First Price Auctions," Working Papers 0504, Brock University, Department of Economics, revised Nov 2005.
  2. Elmar G. Wolfstetter, 2001. "The Swiss UMTS Spectrum Auction Flop: Bad Luck or Bad Design," CESifo Working Paper Series 534, CESifo Group Munich.
  3. Hayley Chouinard & Jonathan Yoder, 2006. "Repeated Auctions with the Right of First Refusal," Working Papers 2006-7, School of Economic Sciences, Washington State University.
  4. Perry, Motty & Wolfstetter, Elmar & Zamir, Shmuel, 1998. "A sealed-bid auction that matches the English auction," SFB 373 Discussion Papers 1998,63, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  5. Alexander Elbittar, 2003. "Impact of Valuation Ranking Information on Bidding in First-Price Auctions: A Laboratory Study," Working Papers 0304, Centro de Investigacion Economica, ITAM.
  6. Hayley Chouinard, 2006. "Repeated Auctions with the Right of First Refusal and Asymmetric Information," Working Papers 2006-6, School of Economic Sciences, Washington State University.

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