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"Upping the ante": How to design efficient auctions with entry?

  • Laurent Lamy

    (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

In the symmetric independent private value model, we revisit auctions with entry by adding two additional ingredients: difficulties to commit to the announced mechanism, in particular not to update the reserve price after bidders took their entry decisions, and seller's ex ante uncertainty on her reservation value which calls for flexibility. Shill bidding or ex post rights to cancel the sale may provide some valuable flexibility in second price auctions. However, both fail to be efficient since the seller may keep the good while it would be efficient to allocate it to the highest bidder. The English auction with jump bids and cancelation rights is shown to implement the first best in large environments. On the positive side, special emphasis is put on the equilibrium analysis of auctions with shill bidding and on a variety of associated new insights including counterintuitive comparative statics and a comparison with posted-prices.

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Paper provided by HAL in its series PSE Working Papers with number halshs-00564888.

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Date of creation: Jun 2010
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Handle: RePEc:hal:psewpa:halshs-00564888
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  2. Leandro Arozamena & Estelle Cantillon, 2004. "Investment incentives in procurement auctions," ULB Institutional Repository 2013/9005, ULB -- Universite Libre de Bruxelles.
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  9. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  10. Robert H. Porter & J. Douglas Zona, 1992. "Detection of Bid Rigging in Procurement Auctions," NBER Working Papers 4013, National Bureau of Economic Research, Inc.
  11. Laurent Lamy, 2005. "The ‘Shill Bidding Effect’ Versus the ‘Linkage Principle’," Working Papers 2005-35, Centre de Recherche en Economie et Statistique.
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