Sequential Bidding in Asymmetric First Price Auctions

31 Pages Posted: 29 Oct 2014

See all articles by Gal Cohensius

Gal Cohensius

Ben-Gurion University of the Negev

Ella Segev

Ben-Gurion University of the Negev - Department of IE&M

Date Written: October 28, 2014

Abstract

We study asymmetric first price auctions in which bidders place their bids sequentially, one after the other and only once. We show that with a strong bidder and a weak bidder (in terms of first order stochastic dominance of their valuations distribution function), when the asymmetry between the bidders is large enough the expected revenue in the sequential bidding first price auction (when the strong bidder bids first) is higher than in the simultaneous bidding first price auction as well as in the second price auction. The expected payoff of the weak bidder is also higher in the sequential first price auction. Therefore a seller interested in increasing revenue facing asymmetric bidders may find it beneficial to order them and let them bid sequentially instead of simultaneously. In terms of efficiency, both the simultaneous first price auction and the sequential first price auction cannot guarantee full efficiency (as opposed to a second price auction which guarantees full efficiency). The sequential bidding auction when the stronger bidder bids first achieves lower efficiency than the simultaneous auction. However, when the order is reversed and bidders are asymmetric enough the sequential first price auction achieves higher efficiency than the simultaneous one.

Suggested Citation

Cohensius, Gal and Segev, Ella, Sequential Bidding in Asymmetric First Price Auctions (October 28, 2014). Available at SSRN: https://ssrn.com/abstract=2515790 or http://dx.doi.org/10.2139/ssrn.2515790

Gal Cohensius

Ben-Gurion University of the Negev ( email )

1 Ben-Gurion Blvd
Beer-Sheba 84105, 84105
Israel

Ella Segev (Contact Author)

Ben-Gurion University of the Negev - Department of IE&M ( email )

1 Ben-Gurion Blvd
Beer Sheva, 84105
Israel

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