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    Two Essays on the Average Bid Auction

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    LEE-DISSERTATION-2017.pdf (610.8Kb)
    Date
    2017-05-19
    Author
    Lee, Jin Hyung
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    Abstract
    The dissertation investigates an average bid auction, in which the bid closest to the average wins the auction. In the first study, I investigate the equilibrium bidding strategy in the average bid auction, when cost constitutes a private value without the winner’s curse. More specifically, in addition to the pooling equilibrium established by the existing literature, I characterize a partially pooling equilibrium with three bidders, in which the bid function is constant for small cost realizations and strictly increasing in cost for high cost realizations. Moreover, complete necessary conditions for the existence of partially pooling equilibrium are provided in the case of more than three bidders. Lastly, unlike the first price auction, the average bid auction loses efficiency, and the buyer is likely to pay the more compared to first price auction. The second study investigates the characterization of the equilibrium bid function with three bidders in the average bid auction, considering the possibility of cost overrun and penalty. When the penalty is zero, every bidder bids an identical amount. If the penalty is large, either some bidders bid identically and the rest of bidders follow a strictly increasing bidding strategy, or all bidders place an identical bid. Finally, I compare the average bid auction with the first price reverse auction from the buyer’s point of view. If the penalty is not imposed on insolvent bidders, the buyer who chooses the average bid auction could be better off. On the other hand, if the penalty is large enough to prevent all bidders from defaulting, the average bid auction is always worse. This result partly explains why the average bid auction has been widespread in Italy, and the first price reverse auction has been dominantly used for the procurement in the U.S.
    URI
    http://hdl.handle.net/1969.1/165696
    Subject
    reverse auction
    average bid auction
    first price reverse auction
    cost overrun
    penalty
    default risk
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    • Electronic Theses, Dissertations, and Records of Study (2002– )
    Citation
    Lee, Jin Hyung (2017). Two Essays on the Average Bid Auction. Doctoral dissertation, Texas A & M University. Available electronically from http : / /hdl .handle .net /1969 .1 /165696.

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