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Cournot’s model of oligopoly - page 31 / 38

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Strategic game:

  • players: bidders

  • set of actions of each player: set of possible bids (nonnegative numbers)

  • preferences of player i: represented by a payoff function that gives player i vi p if she wins (where vi is her valuation and p is the second-highest bid) and 0 otherwise.

This is a sealed-bid second-price auction. How to break ties in bids?

Simple (but arbitrary) rule: number players 1, . . . , n and make the winner the player with the lowest number among those that submit the highest bid.

Assume that v1 > v2 > · · · > vn.

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