Template-Type: ReDIF-Paper 1.0
Title: Bidding in Common-Value Auctions With an Uncertain Number of Competitors
Author-Name: Stephan Lauermann
Author-Email: s.lauermann@uni-bonn.de
Author-Name: Andre Speit
Author-Email: aspeit@uni-bonn.de

Classification-JEL: C62, D44, D82
Keywords: common-value auctions, random player games, numbers uncertainty, Poisson games, endogenous tie-breaking, non-existence

Abstract: This paper studies a first-price common-value auction in which bidders are
uncertain about the number of their competitors. It shows that this uncertainty
invalidates classic findings for common-value auctions with a known number of rival bidders (Milgrom and Weber 1982). In particular, the inference from winning
is no longer monotonic, and a “winner’s blessing” emerges at low bids. As a result,
bidding strategies may not be strictly increasing but instead contain atoms. The
location of the atoms is indeterminate, implying equilibrium multiplicity. Moreover, an equilibrium fails to exist when the expected number of competitors is
large and the bid space is continuous. Therefore, we consider auctions on a grid.
On a fine grid, high-signal bidders follow an essentially strictly increasing strategy
whereas low-signal bidders pool on two adjacent bids on the grid. For the equilibrium characterization, we utilize a “communication extension” based on Jackson
et al. (2002).

Note: 
Length: 62
Creation-Date: 2019-11
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp136
Handle: RePEc:bon:boncrc:CRCTR224_2019_136