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Optimal decisions in foreign exchange bidding markets
Author(s) -
Tenorio Rafael
Publication year - 1995
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.4090160102
Subject(s) - bidding , microeconomics , economics , value (mathematics) , product (mathematics) , stochastic game , outcome (game theory) , marginal value , computer science , mathematics , geometry , machine learning
I characterize optimal bidding decisions in bidding markets where each agent does not perceive she can significantly affect the market outcome. Using a foreign exchange bidding framework to provide a micro‐foundation for the shape of a bidder's payoff function, I show that (1) in a discriminatory auction a bidder bids for a price that equals the value of the marginal product of her bid quantity, and (2) in a competitive auction a bidder bids for a price that equals the value of the average product of her bid quantity. An example illustrates the comparative properties of these solutions.