TY - JOUR
T1 - First-price auction with a stochastic head start
AU - Klunover, Doron
N1 - Publisher Copyright:
© The Author(s) 2024.
PY - 2025/12
Y1 - 2025/12
N2 - We consider a two-player first-price sealed-bid auction for an item with a common value, where one player has a head start with a stochastic value. We show that under mild conditions, there exists a unique Bayesian Nash equilibrium in pure strategies in which the player with the head start buys the item at a price equal to its value minus the minimal value of the head start rather than its expected value. Thus, the seller extracts an information rent. Applications of the results in professional sports are considered.
AB - We consider a two-player first-price sealed-bid auction for an item with a common value, where one player has a head start with a stochastic value. We show that under mild conditions, there exists a unique Bayesian Nash equilibrium in pure strategies in which the player with the head start buys the item at a price equal to its value minus the minimal value of the head start rather than its expected value. Thus, the seller extracts an information rent. Applications of the results in professional sports are considered.
KW - First price auction
KW - Hazard rate
KW - Head start
KW - Incomplete information
UR - https://www.scopus.com/pages/publications/105007988980
U2 - 10.1007/s10058-024-00371-z
DO - 10.1007/s10058-024-00371-z
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AN - SCOPUS:105007988980
SN - 1434-4742
VL - 29
SP - 717
EP - 725
JO - Review of Economic Design
JF - Review of Economic Design
IS - 4
ER -