Frictions in Internet Auctions with Many Traders: A Counterexample

8 Pages Posted: 2 Oct 2015

See all articles by Javier Donna

Javier Donna

Ohio State University (OSU) - Economics

Pablo Schenone

Arizona State University (ASU)

Greg Veramendi

Arizona State University (ASU) - Economics Department

Date Written: September 1, 2015

Abstract

Peters and Severinov (2006) (PS henceforth) characterize a perfect Bayesian equilibrium (PBE) in a competing auctions environment, where all buyers are linked to all the sellers. PS characterize a PBE using a simple bidding rule, whereby buyers select in which auction to bid. In this note we show that when buyers are linked with a subset of the sellers (i.e. when there are search frictions), the PS bidding rule is no longer guaranteed to be efficient nor a PBE of the competing auctions game of PS. Our results indicate that researchers should be cautious when using the PS bidding rule to make inference about the behavior of buyers and sellers in a market where frictions are present such as eBay.

Keywords: Auctions; Internet; Frictions; Networks

JEL Classification: C73; C78; D44

Suggested Citation

Donna, Javier D. and Schenone, Pablo and Veramendi, Greg, Frictions in Internet Auctions with Many Traders: A Counterexample (September 1, 2015). Available at SSRN: https://ssrn.com/abstract=2667659 or http://dx.doi.org/10.2139/ssrn.2667659

Javier D. Donna (Contact Author)

Ohio State University (OSU) - Economics ( email )

410 Arps Hall
1945 N. High St.
Columbus, OH 43210-1172
United States

Pablo Schenone

Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

Greg Veramendi

Arizona State University (ASU) - Economics Department ( email )

Tempe, AZ 85287-3806
United States

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