On the properties of equilibria in private value divisible good auctions with constrained bidding

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Abstract

I analyze a model of a private value divisible good auction with different payment rules, standard rationing rule pro-rata on-the-margin and both with and without a restriction on the number of bids (steps) bidders can submit. I provide characterization of equilibrium bidding strategies in a model with restricted strategy sets and I show that these equilibria converge to an equilibrium of the model with unrestricted strategy sets as the restrictions are relaxed. However, not all equilibria in the unrestricted game can be achieved as limits of the equilibria of the restricted games. I demonstrate that the equilibrium conditions require that the Euler condition characterizing equilibrium in continuously differentiable strategies in the unrestricted model holds "on average" over the intervals defined by the length of each (price) step of the restricted strategy, where the average is taken with respect to the endogenous distribution of the market clearing price. The characterization from the restricted model also allows for a natural interpretation of the involved trade-offs. Adapting the argument of Chao and Wilson (1987) I also prove that the foregone surplus of a bidder from using K steps rather than a continuous bid is proportional to.

Original languageEnglish (US)
Pages (from-to)339-352
Number of pages14
JournalJournal of Mathematical Economics
Volume48
Issue number6
DOIs
StatePublished - Dec 1 2012
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics
  • Applied Mathematics

Keywords

  • Discriminatory auction
  • Multiunit auctions
  • Step functions
  • Uniform price auction

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