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Competitive Auctions: Theory and Application

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  • John Kennes

    (Institute of Economics, University of Copenhagen)

Abstract

The theory of competitive auctions offers a coherent framework for modelling coordination frictions as a non-cooperative game. The theory represents an advancement over cooperative approaches that make exogenous assumptions about how output is divided between buyers and sellers and about the forces that bring buyers and sellers into local markets. Moreover, unlike price posting models, which fix the terms of trade prior to matching, competitive auction models have a bidding process that allocates the good (or service) to the highest valuation bidder at a price equal to the second highest valuation. Therefore, the competitive auction model is more robust to problems in which there are heterogenous valuations. This paper develops the theory of competitive auctions and applies it to a number of practical problems in microeconomics, labor economics, industrial organization, investment theory and monetary economics.

Suggested Citation

  • John Kennes, 2004. "Competitive Auctions: Theory and Application," Discussion Papers 04-16, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:0416
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    References listed on IDEAS

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    Cited by:

    1. Kennes, John & Schiff, Aaron, 2008. "Quality infomediation in search markets," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1191-1202, September.

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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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