Competitive Auctions: Theory and Application

29 Pages Posted: 13 Sep 2004

See all articles by John R. Kennes

John R. Kennes

VIVE - The Danish Centre of Applied Social Science

Date Written: September 2004

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 competing auction model is more robust to problems in which there are heterogeneous 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.

Keywords: Auctions, search, coordination frictions

JEL Classification: D44, D83, E24, J63

Suggested Citation

Kennes, John Robert, Competitive Auctions: Theory and Application (September 2004). Available at SSRN: https://ssrn.com/abstract=588441 or http://dx.doi.org/10.2139/ssrn.588441

John Robert Kennes (Contact Author)

VIVE - The Danish Centre of Applied Social Science ( email )