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Entry Deterrence in Dynamic Second-Price Auctions

Author

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  • Xiaogang Che
  • Tilman Klumpp

Abstract

We examine a dynamic second-price auction with independent private values and sequential costly entry. We show that delayed revelation equilibria exist in which some buyers place coordinated low early bids. These buyers revise their bids to reflect their true valuations just prior to the end of the auction. Compared to the benchmark immediate revelation equilibrium, in which buyers bid their valuations immediately after entry, fewer high-value bidders enter on expectation in the delayed revelation equilibria. Delayed revelation of buyer values decreases social welfare, but is necessary for bidders to have a strict participation incentive. (JEL D44, D82, D83)

Suggested Citation

  • Xiaogang Che & Tilman Klumpp, 2016. "Entry Deterrence in Dynamic Second-Price Auctions," American Economic Journal: Microeconomics, American Economic Association, vol. 8(2), pages 168-201, May.
    • Handle: RePEc:aea:aejmic:v:8:y:2016:i:2:p:168-201
    Note: DOI: 10.1257/mic.20140137
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    References listed on IDEAS

    as
    1. Dequiedt, Vianney, 2007. "Efficient collusion in optimal auctions," Journal of Economic Theory, Elsevier, vol. 136(1), pages 302-323, September.
    2. Alvin E. Roth & Axel Ockenfels, 2002. "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," American Economic Review, American Economic Association, vol. 92(4), pages 1093-1103, September.
    3. Acemoglu,Daron & Arellano,Manuel & Dekel,Eddie (ed.), 2013. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9781107016057.
    4. Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," American Economic Review, American Economic Association, vol. 99(4), pages 1544-75, September.
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    Cited by:

    1. Jan Christoph Schlegel & Akaki Mamageishvili, 2021. "On-Chain Auctions with Deposits," Papers 2103.16681, arXiv.org, revised Jul 2022.
    2. Xiaogang Che & Tilman Klumpp, 2023. "Auctions versus sequential mechanisms when resale is allowed," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(4), pages 1207-1245, May.

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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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