Auctions with Opportunistic ExpertsThe B.E. Journal in Theoretical Economics (Topics) (2007)
AbstractIn this paper we revisit the first price and the second price sealed-bid auctions. However, unlike the standard model we assume that bidding is conducted by an expert on behalf of the client, and that the client does not completely trust the expert's qualifications. In particular, if the client did not win the auction, but could have won it by submitting a bid below her valuation or won but feels she could had paid less for the object, the client asks the expert to justify the strategy. The objective of this paper is to incorporate the concern for the justifiability into the expert's objective function. We show that under some assumptions about the justification process the requirement of justifiability increases the optimal bid in the first price sealed-bid auction, while bidding the client's true value remains the optimal strategy in the second price auction. Hence, the first price auction may raise more revenue than the second price auction and then it will be preferred by the seller. Both auctions allocate the good to the client with the highest valuation. However, the second price sealed-bid auction is more efficient, since the experts do not incur costs due to the failure to justify their strategy.
Citation InformationSuren Basov and Svetlana Danilkina. "Auctions with Opportunistic Experts" The B.E. Journal in Theoretical Economics (Topics) Vol. 7 Iss. 1 (2007)
Available at: http://works.bepress.com/svetlana_danilkina/1/