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A Theory of Costly Sequential Bidding
[Strategic jump bidding in English auctions]

Author

Listed:
  • Kent D Daniel
  • David Hirshleifer
Abstract
We model sequential bidding in a private value English auction when it is costly to submit or revise a bid. We show that, even when bid costs approach zero, bidding occurs in repeated jumps, consistent with certain types of natural auctions such as takeover contests. In contrast with most past models of bids as valuation signals, every bidder has the opportunity to signal and increase the bid by a jump. Jumps communicate bidders’ information rapidly, leading to contests that are completed in a few bids. The model additionally predicts; informative delays in the start of bidding; that the probability of a second bid decreases in, and the jump increases in, the first bid; that objects are sold to the highest valuation bidder; and that revenue and efficiency relationships between different auctions hold asymptotically.

Suggested Citation

  • Kent D Daniel & David Hirshleifer, 2018. "A Theory of Costly Sequential Bidding [Strategic jump bidding in English auctions]," Review of Finance, European Finance Association, vol. 22(5), pages 1631-1665.
    • Handle: RePEc:oup:revfin:v:22:y:2018:i:5:p:1631-1665.
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    File URL: http://hdl.handle.net/10.1093/rof/rfy009
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    References listed on IDEAS

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    1. Delnoij, Joyce & Rezaei, Sarah & Rijt, Arnout van de, 2023. "Jump bidding does not reduce prices: Field-experimental evidence from online auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 209(C), pages 308-325.
    2. Sven Fischer & Werner Güth & Todd R. Kaplan & Ro'i Zultan, 2021. "Auctions With Leaks About Early Bids: Analysis And Experimental Behavior," Economic Inquiry, Western Economic Association International, vol. 59(2), pages 722-739, April.

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