Finance and Economics Discussion Series (FEDS)
February 1998
A Discrete Model of Discriminatory Price Auctions--An Alternative to Menezes-Monteiro
Hans Haller and Yvan Lengwiler
Abstract:
Menezes and Monteiro, Math. Soc. Sci. (1995), show that a multi-unit discriminatory price auction does not have a pure strategy equilibrium unless one imposes some rather special conditions on the demand functions. This non-existence result might indicate a problem either wirh the underlying auction procedure (as Menezes and Monteiro suggest) or with the modelling approach (as we suggest). We observe that the non-existence problem disappears if bids must come in multiples of smallest units -- a realistic feature. Moreover, we show that most of the analysis can be recast in a discrete action model.
Full paper (241 KB Postscript)Keywords: Discriminatory price auction, mixed strategies, existence of equilibrium, integer constraints
PDF: Full Paper
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