Standard Auctions with Identity-Dependent Externalities

Abstract

We analyze equilibrium bidding behavior in a three bidder open ascending bid auction with identity dependent externalities. We prove the existence of a unique symmetric equilibrium and then show that for sufficiently large externalities, the open auction yields strictly higher expected revenues compared to a sealed bid auction. An open auction reveals to bidders more payoff relevant information than a sealed bid auction and as a consequence, bidders are shown to have a higher willingness to pay in the early rounds of an open auction. The open auction is also shown to be more efficient than the sealed bid auction.

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