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Entry Deterrence in Dynamic Second-Price Auctions

Che, X. and Klumpp, T. (2016). Entry Deterrence in Dynamic Second-Price Auctions. American Economic Journal: Microeconomics, 8(2), pp. 168-201. doi: 10.1257/mic.20140137

Abstract

We examine a dynamic second-price auction with independent private values and sequential costly entry. We show that delayed revelation equilibria exist in which some buyers place coordinated low early bids. These buyers revise their bids to reflect their true valuations just prior to the end of the auction. Compared to the benchmark immediate revelation equilibrium, in which buyers bid their valuations immediately after entry, fewer high-value bidders enter on expectation in the delayed revelation equilibria. Delayed revelation of buyer values decreases social welfare, but is necessary for bidders to have a strict participation incentive.

Publication Type: Article
Additional Information: Copyright © 2016 AEA
Subjects: H Social Sciences > HB Economic Theory
Departments: School of Arts & Social Sciences > Economics
URI: http://openaccess.city.ac.uk/id/eprint/22461
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