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Option values in sequential auctions with time-varying valuations

Author

Listed:
  • Amir Ban

    (Weizmann Institute of Science)

  • Ron Lavi

    (Technion, Israel Institute of Technology)

Abstract

We investigate second-price sequential auctions of unit-demand bidders with time-variable valuations under complete information. We describe how a bidder figures willingness to pay by calculating option values, and show that when bidders bid their option value, and a condition of consistency is fulfilled, a subgame-perfect equilibrium is the result. With no constraints on valuations, equilibria are not necessarily efficient, but we show that when bidder valuations satisfy a certain constraint, an efficient equilibrium always exists. This result may be extended to a model with arrivals of bidders. We show how the equilibrium allocation, bids, and bidder utilities are calculated in the general case. We prove constructively that a pure subgame-perfect equilibrium always exists, and show how all pure equilibria can be found by the method of option values

Suggested Citation

  • Amir Ban & Ron Lavi, 2021. "Option values in sequential auctions with time-varying valuations," International Journal of Game Theory, Springer;Game Theory Society, vol. 50(1), pages 75-104, March.
    • Handle: RePEc:spr:jogath:v:50:y:2021:i:1:d:10.1007_s00182-020-00740-2
    DOI: 10.1007/s00182-020-00740-2
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    References listed on IDEAS

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