Competitive Auctions: Theory and Application
29 Pages Posted: 13 Sep 2004
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: Suggested Citation
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