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Affiliation, Equilibrium Existence and Revenue Ranking of Auctions

  • Luciano De Castro
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    Affiliation has been a prominent assumption in the study of economic models with statistical dependence. Despite its large number of applications, especially in auction theory, affiliation has limitations that are important to be aware of. This paper shows that affiliation is a restrictive condition and the intuition usually given for its adoption may be misleading. Also, other usual justifications for affiliation are not compelling. Moreover, some implications of affiliation — namely, equilibrium existence in first-price auctions and the revenue dominance of second-price auctions — do not generalize to other definitions of positive dependence. JEL Classification Numbers: C62, C72, D44, D82.

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    Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1530.

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    Date of creation: 01 Dec 2010
    Date of revision:
    Handle: RePEc:nwu:cmsems:1530
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    19. Hubbard, Timothy P. & Li, Tong & Paarsch, Harry J., 2012. "Semiparametric estimation in models of first-price, sealed-bid auctions with affiliation," Journal of Econometrics, Elsevier, vol. 168(1), pages 4-16.
    20. Castro, Luciano I. De & Paarsch, Harry J., 2009. "Testing Affiliation in Private-values Models of First-price Auctions Using Grid Distributions," CEI Working Paper Series 2009-11, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    21. Tong Li & Bingyu Zhang, 2010. "Testing For Affiliation In First-Price Auctions Using Entry Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(3), pages 837-850, 08.
    22. Motty Perry & Philip J. Reny, 1999. "On The Failure of the Linkage Principle in Multi-Unit Auctions," Econometrica, Econometric Society, vol. 67(4), pages 895-900, July.
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    25. Milgrom, Paul R, 1981. "Rational Expectations, Information Acquisition, and Competitive Bidding," Econometrica, Econometric Society, vol. 49(4), pages 921-43, June.
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