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ARE DISADVANTEGED BIDDERS DOOMED IN ASCENDING AUCTIONS?
Author(s) -
PAGNOZZI MARCO
Publication year - 2008
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.1467-6451.2008.00358.x
Subject(s) - common value auction , generalized second price auction , microeconomics , disadvantaged , revenue , valuation (finance) , economics , english auction , incentive , vickrey–clarke–groves auction , vickrey auction , auction theory , business , finance , economic growth
A bidder is said to be advantaged if she has a higher expected valuation of the auction prize than her competitor. When the prize has a common‐value component, a bidder competing in an ascending auction against an advantaged competitor bids especially cautiously and, hence, the advantaged bidder wins most of the time. However, contrary to what is often argued, a disadvantaged bidder still wins with positive probability, even if his competitor's advantage is very large and even if the disadvantaged bidder has the lowest actual valuation ex‐post . Therefore, the disadvantaged bidder has an incentive to participate in the auction, and the presence of a bidder with a small advantage does not have a dramatic effect on the seller's revenue.