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The University of Southampton
EconomicsPart of Economic, Social and Political Science

1903 Robust Bidding and Revenue in Descending Price Auctions

Author: Sarah Auster (Bocconi University), Christian Kellner (University of Southampton)

Paper number: 1903

We study the properties of Dutch auctions in an independent private value setting, where bidders face uncertainty over the type distribution of their opponents and evaluate their payoffs by the worst-case from a set of probabilistic scenarios. In contrast to static auction formats, participants in the Dutch auction gradually learn about the valuations of other bidders. We show that the transmitted information can lead to changes in the worst-case distribution and thereby shift a bidder’s payoff maximizing exit price over time. We characterise the equilibrium bidding function in this environment
and show that the arriving information leads bidders to exit earlier at higher prices. As a result, the Dutch auction systematically generates more revenue than the first-price auction.

Keywords: Auctions, Ambiguity, Consistent Planning

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