Auctions with Almost Homogeneous Bidders

Abstract

We deviate from the symmetric case of the independent private value model by allowing the bidders’ value distributions, which depend on parameters, to be slightly different. We show that previous results about the equality to the first-order in the parameters between revenues from the second-price auction and other auction mechanisms follow from the joint differentiability of the equilibria with respect to the parameters. We prove this differentiability for the first-price auction and obtain general formulas for the different first-order effects. From our results about the first-price auction, we analytically generate examples with continuous distributions where a stochastic improvement to a bidder’s value distribution reduces his equilibrium payoff. In another application, we show that, starting from competition among cartels of equal sizes, allowing in a small number of members from other cartels can be profitable only if the members or the synergies between them are strong enough.Independent private value model; auctions; asymmetry; first-price auction, second-price auction; differentiability; revenue equivalence theorem