Third- and Lower-Price Auctions
Dept. of Economics, Humboldt-Universitat Berlin
9 Pages Posted: 1 Jan 2001 Last revised: 20 May 2012
Date Written: July 1, 2000
This paper solves the equilibrium bid functions of third-- and lower--price auctions. In these auctions, equilibrium bids exceed bidders' valuations, and bidders raise their bids if one moves to a lower price auction, and lower bids if the number of bidders is increased. Third-- and lower--price auctions are unappealing under risk aversion, which in turn may make them appealing when the auction is a substitute for small scale gambling, as in many Internet auctions. Moreover, in the presence of a corrupt agent-auctioneer, an auction may turn out to be third-- or lower--price, even though it was set up as a second--price or hybrid English auction.
Keywords: auctions, procurement, corruption
JEL Classification: D44, D82, H57, C72
Suggested Citation: Suggested Citation