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Are Disadvantaged Bidders Doomed in Ascending Auctions?

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Abstract

A bidder is said to be advantaged if she has a higher expected valuation of the auction prize than her competitor. When the prize has a common-value component, a bidder competing in an ascending auction against an advantaged competitor bids especially cautiously and, hence, the advantaged bidder wins most of the time. However, contrary to what is often argued, a disadvantaged bidder still wins with positive probability, even if his competitor.s advantage is very large and even if the disadvantaged bidder has the lowest actual valuation ex-post. Therefore, the disadvantaged bidder has an incentive to participate in the auction, and the presence of a bidder with a small advantage does not have a dramatic e¤ect on the seller.s revenue.

Suggested Citation

  • Marco Pagnozzi, 2006. "Are Disadvantaged Bidders Doomed in Ascending Auctions?," CSEF Working Papers 169, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:169
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    Cited by:

    1. Lorentziadis, Panos L., 2016. "Optimal bidding in auctions from a game theory perspective," European Journal of Operational Research, Elsevier, vol. 248(2), pages 347-371.

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    More about this item

    Keywords

    common-value auctions; asymmetric bidders;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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