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Equilibria in Second Price Auctions with Participation Costs

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  • Tan, Guofu
  • Yilankaya, Okan

Abstract

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.

Suggested Citation

  • Tan, Guofu & Yilankaya, Okan, 2004. "Equilibria in Second Price Auctions with Participation Costs," Microeconomics.ca working papers tan-04-01-24-10-08-06, Vancouver School of Economics, revised 09 Jun 2006.
  • Handle: RePEc:ubc:pmicro:tan-04-01-24-10-08-06
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    References listed on IDEAS

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    1. R. Preston McAfee & Daniel C. Quan & Daniel R. Vincent, 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.
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    More about this item

    Keywords

    Second price auctions; participation costs; multiplicity of equilibria;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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