Bid costs and endogenous bid caps


Gavious, Arieh ; Moldovanu, Benny ; Sela, Aner


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URL: http://ub-madoc.bib.uni-mannheim.de/2807
URN: urn:nbn:de:bsz:180-madoc-28074
Document Type: Working paper
Year of publication: 2000
The title of a journal, publication series: None
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject: 330 Economics
Subject headings (SWD): Auktionstheorie , Kostenfunktion , Budgetbeschränkung
Abstract: We study contests where several privately informed agents bid for a price. All bidders bear a cost of bidding that is an increasing function of their bids, and, moreover, bids may be capped. We show that, regardless of the number of bidders, if agents have linear or concave cost functions then setting a bid cap is not profitable for a designer who wishes to maximize the average bid. On the other hand, if agents have convex cost functions (i.e. an increasing marginal cost) then affectively capping the bids is profitable for a designer facing a sufficiently large number of bidders.
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