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Internet Auctions with Many Traders

  • Michael Peters
  • Sergei Severinov

A multi-unit auction environment similar to Ebay is studied. Sellers who wish to sell a single unit of a homogenous good set reserve prices for their own independently run auctions. Buyers who hope to acquire a single unit bid as often as they like in a dynamic second price auction. When the number of buyers and sellers is large but finite, there is a Bayesian equilibrium for this completely decentalized trading procedure in which the ex post efficient set of trades occurs at a uniform trading price. Remarkably, the strategy rules that buyers and sellers use in this equilibrium are very simple. They do not depend in any way on beliefs, or on the number of buyers and sellers.

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Paper provided by University of Toronto, Department of Economics in its series Working Papers with number peters-01-01.

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Length: 31 pages
Date of creation: 11 Feb 2001
Date of revision:
Handle: RePEc:tor:tecipa:peters-01-01
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  1. Michael Peters & Sergei Severinov, 1995. "Competition Among Sellers who offer Auctions Instead of Prices," Working Papers peters-95-02, University of Toronto, Department of Economics.
  2. Gresik, Thomas A., 1991. "Ex ante incentive efficient trading mechanisms without the private valuation restriction," Journal of Economic Theory, Elsevier, vol. 55(1), pages 41-63, October.
  3. Aldo Rustichini, 1992. "Convergence to Efficiency in a Simple Market with Incomplete Information," Discussion Papers 995, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Dekel, Eddie & Wolinsky, Asher, 2003. "Rationalizable outcomes of large private-value first-price discrete auctions," Games and Economic Behavior, Elsevier, vol. 43(2), pages 175-188, May.
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  8. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Mark A. Satterthwaite & Steven R. Williams, 1989. "The Rate of Convergence to Efficiency in the Buyer's Bid Double Auction as the Market Becomes Large," Review of Economic Studies, Oxford University Press, vol. 56(4), pages 477-498.
  10. Lawrence M. Ausubel & Paul Milgrom, 2002. "Ascending Auctions with Package Bidding," Working Papers 02004, Stanford University, Department of Economics.
  11. Krishna, Vijay, 2003. "Asymmetric English auctions," Journal of Economic Theory, Elsevier, vol. 112(2), pages 261-288, October.
  12. Matthew O. Jackson & Jeroen M. Swinkels, 2005. "Existence of Equilibrium in Single and Double Private Value Auctions," Econometrica, Econometric Society, vol. 73(1), pages 93-139, 01.
  13. Steven R. Williams, 1999. "A characterization of efficient, bayesian incentive compatible mechanisms," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 14(1), pages 155-180.
  14. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
  15. Leonard, Herman B, 1983. "Elicitation of Honest Preferences for the Assignment of Individuals to Positions," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 461-79, June.
  16. Bajari, Patrick & Hortacsu, Ali, 2003. " The Winner's Curse, Reserve Prices, and Endogenous Entry: Empirical Insights from eBay Auctions," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 329-55, Summer.
  17. Ariel Rubinstein & Asher Wolinsky, 1990. "Decentralized Trading, Strategic Behaviour and the Walrasian Outcome," Review of Economic Studies, Oxford University Press, vol. 57(1), pages 63-78.
  18. Patrick Bajari & Ali Hortaçsu, 2004. "Economic Insights from Internet Auctions," Journal of Economic Literature, American Economic Association, vol. 42(2), pages 457-486, June.
  19. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation for Research in Economics, Yale University.
  20. Vernon L. Smith, 1962. "An Experimental Study of Competitive Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 70, pages 322.
  21. Alvin E. Roth & Axel Ockenfels, 2000. "Last Minute Bidding and the Rules for Ending Second-Price Auctions: Theory and Evidence from a Natural Experiment on the Internet," NBER Working Papers 7729, National Bureau of Economic Research, Inc.
  22. Lucking-Reiley, David, 2000. "Auctions on the Internet: What's Being Auctioned, and How?," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 227-52, September.
  23. Jean-Jacques Herings, P., 1997. "A globally and universally stable price adjustment process," Journal of Mathematical Economics, Elsevier, vol. 27(2), pages 163-193, March.
  24. Asher Wolinsky, 1988. "Dynamic Markets with Competitive Bidding," Review of Economic Studies, Oxford University Press, vol. 55(1), pages 71-84.
  25. Satterthwaite, Mark A. & Williams, Steven R., 1989. "Bilateral trade with the sealed bid k-double auction: Existence and efficiency," Journal of Economic Theory, Elsevier, vol. 48(1), pages 107-133, June.
  26. Roth, Alvin E. & Sotomayor, Marilda, 1992. "Two-sided matching," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 16, pages 485-541 Elsevier.
  27. Gul, Faruk & Stacchetti, Ennio, 2000. "The English Auction with Differentiated Commodities," Journal of Economic Theory, Elsevier, vol. 92(1), pages 66-95, May.
  28. Dekel, E. & Wolinsky, A., 2000. "Rationalizable Outcomes of Large Independent Private-Value First-Price Discrete Auctions," Papers 2000-13, Tel Aviv.
  29. Wilson, Robert B, 1985. "Incentive Efficiency of Double Auctions," Econometrica, Econometric Society, vol. 53(5), pages 1101-15, September.
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