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Competing first-price and second-price auctions

Author

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  • J.M.J. Delnoij
  • K.J.M. De Jaegher

Abstract

This paper theoretically investigates which auctions competing sellers select when they can choose between first-price and second-price auctions, and when risk averse bidders endogenously enter one of the auctions. We first consider bidders’ entry decisions between exogenously given auctions, and find that there exists a symmetric entry equilibrium that is characterized by a mixed strategy, which depends on the bidders’ degree of absolute risk aversion. In a next step, we endogenize the sellers’ choice of auctions. We show that competing sellers have a dominant strategy to select first-price auctions if bidders exhibit nondecreasing absolute risk aversion. If bidders exhibit decreasing absolute risk aversion, however, other equilibria exist in which sellers select second-price auctions as well.

Suggested Citation

  • J.M.J. Delnoij & K.J.M. De Jaegher, 2016. "Competing first-price and second-price auctions," Working Papers 16-07, Utrecht School of Economics.
  • Handle: RePEc:use:tkiwps:1607
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    References listed on IDEAS

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    Cited by:

    1. Eliaz, Kfir & Oren-Kolbinger, Orli & Weisburd, Sarit, 2017. "Limited Attention, Salience and Changing Prices: Evidence from a Field Experiment in Online Supermarket Shopping," CEPR Discussion Papers 12014, C.E.P.R. Discussion Papers.

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    Keywords

    Auctions; Entry decisions; Risk aversion;

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