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Second-price auctions with sequential and costly participation

Author

Listed:
  • Jinhyuk Lee

    (Korea University
    Ulsan National Institute of Science and Technology)

  • Jaeok Park

    (Yonsei University)

Abstract

This paper studies second-price auctions in which bidders make participation decisions sequentially in an exogenous order and participating bidders incur bidding costs. When bidders decide whether to participate or not, they know their own valuations as well as earlier bidders’ participation decisions. To analyze bidders’ participation and bidding decisions, we study equilibria in cutoff strategies with which a bidder participates and bids his valuation if his valuation exceeds a cutoff given his observation on earlier bidders’ participation. Focusing on the case of two bidders, we present two main results on comparative statics and revenue comparison. In the comparative statics analysis, we study the effects of a change in bidders’ characteristics on equilibrium cutoffs. In revenue comparison, we show that the considered sequential entry format yields lower revenue than the simultaneous entry counterpart. Finally, we discuss the difficulties in generalizing these two results for the case of more than two bidders.

Suggested Citation

  • Jinhyuk Lee & Jaeok Park, 2016. "Second-price auctions with sequential and costly participation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(3), pages 567-586, August.
    • Handle: RePEc:spr:joecth:v:62:y:2016:i:3:d:10.1007_s00199-015-0915-6
    DOI: 10.1007/s00199-015-0915-6
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    References listed on IDEAS

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    Cited by:

    1. Jeongwoo Lee & Jaeok Park, 2019. "Preemptive Entry in Sequential Auctions with Participation Cost," Working papers 2019rwp-141, Yonsei University, Yonsei Economics Research Institute.
    2. Hanzhe Zhang, 2021. "Prices versus auctions in large markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(4), pages 1297-1337, November.
    3. Makoto Yano & Takashi Komatsubara, 2018. "Price competition or price leadership," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(4), pages 1023-1057, December.

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    More about this item

    Keywords

    Second-price auctions; Sequential participation; Participation costs; Cutoff equilibria;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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