On the Complete Information First-Price Auction and Its Intuitive Solution
Department of Quantitative Methods and Economic Theory; University of Alicante - IUDESP
Universitat Rovira i Virgili - Facultat de Ciències Econòmiques i Empresarials
March 15, 2010
Despite the popularity of auction theoretical thinking, it appears that no one has presented an elementary equilibrium analysis of the complete information first-price sealed-bid auction mechanism when the bidding space has a finite grid. This paper aims to remedy that omission. We show that there always exists a "high price equilibrium'' which can be considered "the intuitive solution'' (an agent with the highest valuation wins the auction bidding at the second-highest valuation). Although there might be other "low price equilibria'', we also show that when there are two bidders "the intuitive solution'' is the unique limiting equilibrium when the grid size goes to zero and ties are randomly broken.
Number of Pages in PDF File: 17
Keywords: First-price auctions, undominated Nash equilibria
JEL Classification: C72, D44working papers series
Date posted: March 21, 2010
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