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Robust bidding and revenue in descending price auctions

Robust bidding and revenue in descending price auctions
Robust bidding and revenue in descending price auctions
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.
Ambiguity, Auctions, Consistent planning
0022-0531
Auster, Sarah
a7ee6ae4-69db-4bc3-bc53-e5efb603e613
Kellner, Christian
4e2ed069-76c7-4084-a353-f56ee03e2094
Auster, Sarah
a7ee6ae4-69db-4bc3-bc53-e5efb603e613
Kellner, Christian
4e2ed069-76c7-4084-a353-f56ee03e2094

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

Identifiers

Local EPrints ID: 440982
URI: http://eprints.soton.ac.uk/id/eprint/440982
ISSN: 0022-0531
PURE UUID: 0e06d38f-c6a5-4ad0-a89f-60280b0b42b9
ORCID for Christian Kellner: ORCID iD orcid.org/0000-0003-3855-5418

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Date deposited: 26 May 2020 16:32
Last modified: 30 Apr 2022 04:01

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Author: Sarah Auster

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