Robust bidding and revenue in descending price auctions

Auster, Sarah and Kellner, Christian (2022) Robust bidding and revenue in descending price auctions. Journal of Economic Theory, 199, [105072]. (doi:10.1016/j.jet.2020.105072).

Record type: Article

Abstract

We study the properties of Dutch auctions in an independent private value setting, where bidders face uncertainty over the type distribution of their opponents and evaluate their payoffs by the worst case from a set of probabilistic scenarios. In contrast to static auction formats, participants in the Dutch auction gradually learn about the valuations of other bidders. We show that the transmitted information can lead to changes in the worst-case distribution and thereby shift a bidder's payoff maximizing exit price over time. We characterise the equilibrium bidding function in this environment and show that the arriving information leads bidders to exit earlier at higher prices. As a result, the Dutch auction systematically generates more revenue than the first-price auction.

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Accepted/In Press date: 4 May 2020

e-pub ahead of print date: 15 May 2020

Published date: January 2022

Additional Information: Funding Information: We would like to thank Piotr Dworczak, Piero Gottardi, Peter Klibanoff, Sujoy Mukerji, Antonio Penta, Frank Riedel, Marciano Siniscalchi and Andrzej Skrzypacz for very helpful comments. Sarah Auster gratefully acknowledges funding by the German Research Foundation (DFG) via the CRC TR 224, Project B04 . Publisher Copyright: © 2020 Elsevier Inc. Copyright: Copyright 2022 Elsevier B.V., All rights reserved.

Keywords: Ambiguity, Auctions, Consistent planning