Dynamic Buy-Price English Auction
28 Pages Posted: 21 Nov 2006
Date Written: November 20, 2006
This paper extends the results in Hidvegi et al. (2006) to the case when the number of bidders is common knowledge in an English auction with buy-out. In that case when some bidders drop out, the remaining bidders have to update their information, and change the threshold auction price at which they are willing to buy out accordingly. We explicitly model the information-updating process during auction and the implied recursive nature of the optimal buy-out strategy. Using a recursive equation linking the value functions for n- and (n+1)-bidder cases, we completely characterize the dynamic optimal buy-out strategy. It is shown that the bidders will postpone buy-out (by waiting until the aution price is higher) when some of them drop out.
Keywords: English auction, buy-out, buy-price, on-line auction
JEL Classification: C73, D42, D82, L1
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