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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
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    Handle: RePEc:nwu:cmsems:1530
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    1. R. Preston McAfee & Daniel Vincent, 1992. "Updating the Reserve Price in Common Value Auctions," Discussion Papers 977, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    2. Maskin, Eric S & Riley, John G, 1984. "Optimal Auctions with Risk Averse Buyers," Econometrica, Econometric Society, vol. 52(6), pages 1473-1518, November.
    3. 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.
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    6. Van Zandt, Timothy & Vives, Xavier, 2007. "Monotone equilibria in Bayesian games of strategic complementarities," Journal of Economic Theory, Elsevier, vol. 134(1), pages 339-360, May.
    7. Luciano I. de Castro, 2007. "Affiliation, equilibrium existence and the revenue ranking of auctions," Economics Working Papers we074622, Universidad Carlos III, Departamento de Economía.
    8. Athey, Susan, 2001. "Single Crossing Properties and the Existence of Pure Strategy Equilibria in Games of Incomplete Information," Econometrica, Econometric Society, vol. 69(4), pages 861-89, July.
    9. Nicola Persico, 1997. "Information Acquisition in Auctions," UCLA Economics Working Papers 762, UCLA Department of Economics.
    10. Paul Klemperer, 2004. "Auctions: Theory and Practice," Economics Series Working Papers 2004-W09, University of Oxford, Department of Economics.
    11. Riley, John G, 1988. "Ex Post Information in Auctions," Review of Economic Studies, Wiley Blackwell, vol. 55(3), pages 409-29, July.
    12. 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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    15. Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 511-18, October.
    16. 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.
    17. Jackson, Matthew O. & Jeroen Swinkels, 2004. "Existence of Equilibrium in Single and Double Private Value Auctions," Working Papers 1192, California Institute of Technology, Division of the Humanities and Social Sciences.
    18. Jun, Sung Jae & Pinkse, Joris & Wan, Yuanyuan, 2010. "A consistent nonparametric test of affiliation in auction models," Journal of Econometrics, Elsevier, vol. 159(1), pages 46-54, November.
    19. Robert B. Wilson, 1969. "Communications to the Editor--Competitive Bidding with Disparate Information," Management Science, INFORMS, vol. 15(7), pages 446-452, March.
    20. John McMillan, 1994. "Selling Spectrum Rights," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 145-162, Summer.
    21. Paul Klemperer, 2004. "What Really Matters in Auction Design, from Auctions: Theory and Practice
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    22. Paul Klemperer, 2004. "Introduction to Auctions: Theory and Practice
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      ," Introductory Chapters, Princeton University Press.
    23. 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.
    24. Laffont, Jean-Jacques, 1997. "Game theory and empirical economics: The case of auction data 1," European Economic Review, Elsevier, vol. 41(1), pages 1-35, January.
    25. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
    26. Monteiro, Paulo Klinger & Moreira, Humberto, 2006. "First-price auctions without affiliation," Economics Letters, Elsevier, vol. 91(1), pages 1-7, April.
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