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Equilibria in Second Price Auctions with Participation Costs

  • Tan, Guofu
  • Yilankaya, Okan

We investigate equilibria of sealed-bid second price auctions with bidder participation costs in the independent private values environment. We focus on equilibria in which bidders use cut-off strategies (bid the valuation if it is greater than a certain cut-off point, otherwise do not participate), since if a bidder finds participating optimal, she cannot do better than bidding her valuation. When the bidders are symmetric, the concavity (respectively, strict convexity) of the c.d.f. from which the valuations are drawn is a sufficient condition for uniqueness (respectively, multiplicity) within this class. We also study a special case with asymmetric bidders and show that concavity/convexity plays a similar role.

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Paper provided by Vancouver School of Economics in its series Microeconomics.ca working papers with number tan-04-01-24-10-08-06.

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Length: 0 pages
Date of creation: 24 Jan 2004
Date of revision: 09 Jun 2006
Handle: RePEc:ubc:pmicro:tan-04-01-24-10-08-06
Contact details of provider: Web page: http://www.economics.ubc.ca/

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  1. Steven A. Matthews, 1995. "A Technical Primer on Auction Theory I: Independent Private Values," Discussion Papers 1096, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  3. Tan, Guofu, 1992. "Entry and R & D in procurement contracting," Journal of Economic Theory, Elsevier, vol. 58(1), pages 41-60, October.
  4. Harstad, Ronald M, 1990. "Alternative Common-Value Auction Procedures: Revenue Comparisons with Free Entry," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 421-29, April.
  5. Blume, Andreas & Heidhues, Paul, 2004. "All equilibria of the Vickrey auction," Journal of Economic Theory, Elsevier, vol. 114(1), pages 170-177, January.
  6. Stegeman, Mark, 1996. "Participation Costs and Efficient Auctions," Journal of Economic Theory, Elsevier, vol. 71(1), pages 228-259, October.
  7. McAfee, R Preston & Quan, Daniel C & Vincent, Daniel R, 2002. "How to Set Minimum Acceptable Bids, with an Application to Real Estate Auctions," Journal of Industrial Economics, Wiley Blackwell, vol. 50(4), pages 391-416, December.
  8. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
  9. McAfee, R. Preston & McMillan, John, 1987. "Auctions with entry," Economics Letters, Elsevier, vol. 23(4), pages 343-347.
  10. King, Ian & Welling, Linda & Preston McAfee, R., 1992. "Investment decisions under first and second price auctions," Economics Letters, Elsevier, vol. 39(3), pages 289-293, July.
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