Option Values in Sequential Auctions with Time-Varying Valuations

Amir Ban, Ron Lavi

Research output: Contribution to journalArticlepeer-review

Abstract

We investigate second-price sequential auctions of unit-demand bidders with time-variable valuations under complete information. We describe how a bidder figures willingness to pay by calculating option values, and show that when bidders bid their option value, and a condition of consistency is fulfilled, a subgame-perfect equilibrium is the result. With no constraints on valuations, equilibria are not necessarily efficient, but we show that when bidder valuations satisfy a certain constraint, an efficient equilibrium always exists. This result may be extended to a model with arrivals of bidders. We show how the equilibrium allocation, bids, and bidder utilities are calculated in the general case. We prove constructively that a pure subgame-perfect equilibrium always exists, and show how all pure equilibria can be found by the method of option values
Original languageEnglish
Pages (from-to)75–104
Number of pages30
Journal International Journal of Game Theory
Volume50
Early online date16 Oct 2020
DOIs
Publication statusPublished - 31 Mar 2021

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