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Are Disadvanteged Bidders Doomed In Ascending Auctions?

  • MARCO PAGNOZZI

A bidder is said to be advantaged if she has a higher expected valuation of the auction prize than her competitor. When the prize has a common-value component, a bidder competing in an ascending auction against an advantaged competitor bids especially cautiously and, hence, the advantaged bidder wins most of the time. However, contrary to what is often argued, a disadvantaged bidder still wins with positive probability, even if his competitor's advantage is very large and even if the disadvantaged bidder has the lowest actual valuation ex-post . Therefore, the disadvantaged bidder has an incentive to participate in the auction, and the presence of a bidder with a small advantage does not have a dramatic effect on the seller's revenue. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics.

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Article provided by Wiley Blackwell in its journal The Journal of Industrial Economics.

Volume (Year): 56 (2008)
Issue (Month): 3 (09)
Pages: 683-683

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Handle: RePEc:bla:jindec:v:56:y:2008:i:3:p:683-683
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