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Robust Bidding and Revenue in Descending Price Auctions

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  • Sarah Auster
  • Christian Kellner

Abstract

We study the properties of Dutch auctions in an independent private value setting, where bidders face uncertainty over the type distribution of their opponents and evaluate their payoffs by the worst case from a set of probabilistic scenarios. In contrast to static auction formats, participants in the Dutch auction gradually learn about the valuations of other bidders. We show that the transmitted information can lead to changes in the worst-case distribution and thereby shift a bidder’s payoff maximizing exit price over time. We characterise the equilibrium bidding function in this environment and show that the arriving information leads bidders to exit earlier at higher prices. As a result, the Dutch auction systematically generates more revenue than the first-price auction.

Suggested Citation

  • Sarah Auster & Christian Kellner, 2020. "Robust Bidding and Revenue in Descending Price Auctions," CRC TR 224 Discussion Paper Series crctr224_2020_146, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2020_146
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp146
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    Cited by:

    1. Ghosh, Gagan & Liu, Heng, 2021. "Sequential auctions with ambiguity," Journal of Economic Theory, Elsevier, vol. 197(C).
    2. Sosung Baik & Sung-Ha Hwang, 2021. "Auction design with ambiguity: Optimality of the first-price and all-pay auctions," Papers 2110.08563, arXiv.org.
    3. von Wangenheim, Jonas, 2021. "English versus Vickrey auctions with loss-averse bidders," Journal of Economic Theory, Elsevier, vol. 197(C).

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    Keywords

    Auctions; Ambiguity; Consistent Planning;
    All these keywords.

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