ARE DISADVANTEGED BIDDERS DOOMED IN ASCENDING AUCTIONS?

Author: PAGNOZZI, MARCO

Source: Journal of Industrial Economics, Volume 56, Number 3, September 2008 , pp. 683-683(1)

Buy & download fulltext article:

Price: $48.00 plus tax (Refund Policy)

Abstract:

A bidder is said to be advantaged if she has a higher expected valuation of the auction prize than her competitor. When the prize has a common-value component, a bidder competing in an ascending auction against an advantaged competitor bids especially cautiously and, hence, the advantaged bidder wins most of the time. However, contrary to what is often argued, a disadvantaged bidder still wins with positive probability, even if his competitor's advantage is very large and even if the disadvantaged bidder has the lowest actual valuation ex-post. Therefore, the disadvantaged bidder has an incentive to participate in the auction, and the presence of a bidder with a small advantage does not have a dramatic effect on the seller's revenue.

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1467-6451.2008.00358.x

Affiliations: 1: Department of Economics, Universitá di Napoli Federico II, Via Cintia (Monte S. Angelo) 80126 Napoli, Italy., Email: pagnozzi@unina.it

Publication date: 2008-09-01