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On The Complete Information First-Price Auction And Its Intuitive Solution

  • JOSÉ ALCALDE

    ()

    (Department of Quantitative Methods and Economic Theory and IUDESP, University of Alicante, E-03071 Alicante, Spain)

  • MATTHIAS DAHM

    ()

    (Departament d'Economia and CREIP, Universitat Rovira i Virgili, Av. de la Universitat, 1, E-43204 Reus (Tarragona), Spain)

Despite the popularity of auction theoretical thinking, it appears that no one has presented an elementary equilibrium analysis of the complete information first-price sealed-bid auction mechanism when the bidding space has a finite grid. This paper aims to remedy that omission. We show that there always exists a "high price equilibrium" which can be considered "the intuitive solution" (an agent with the highest valuation wins the auction bidding at the second highest valuation). Although there might be other "low price equilibria," we also show that when there are two bidders "the intuitive solution" is the unique limiting equilibrium when the grid size goes to zero and ties are randomly broken.

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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Game Theory Review.

Volume (Year): 13 (2011)
Issue (Month): 03 ()
Pages: 353-361

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Handle: RePEc:wsi:igtrxx:v:13:y:2011:i:03:p:353-361
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  1. Baye, M.R. & Kovenock, D. & De Vries, C.G., 1991. "Rigging The Lobbying Process: An Application Of The All- Pay Auction," Purdue University Economics Working Papers 1002, Purdue University, Department of Economics.
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  8. Kovenock, D. & de Vries, C.G., 1995. "The All-Pay Auction with Complete Information," UFAE and IAE Working Papers 311.95, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  9. Rapoport, Amnon & Amaldoss, Wilfred, 2004. "Mixed-strategy play in single-stage first-price all-pay auctions with symmetric players," Journal of Economic Behavior & Organization, Elsevier, vol. 54(4), pages 585-607, August.
  10. Alcalde, José & Dahm, Matthias, 2008. "The Complete Information First. Price Auction or the Importance of Being Indivisible," Working Papers 2072/13264, Universitat Rovira i Virgili, Department of Economics.
  11. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February.
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