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Cournot’s model of oligopoly - page 30 / 38

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Auctions

Common type of auction:

  • people sequentially bid for an object

  • each bid must be greater than previous one

  • when no one wishes to submit a bid higher than current one, person making current bid obtains object at price she bid.

Assume everyone is certain about her valuation of the object before bidding begins, so that she can learn nothing during the bidding.

Model

  • each person decides, before auction begins, maximum

amount she is willing to bid

  • person who bids most wins

  • person who wins pays the second highest bid.

Idea: in a dynamic auction, a person wins if she continues bidding after everyone has stopped—in which case she pays a price slightly higher than the price bid by the last person to drop out.

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