MT3: Auctions Flashcards
Hendricks and Porter (AER): Behaviour of oil companies competing for drilling rights to offshore tracts
Distinguish between two bidders:
1. Those operating on adjacent tracts: Insiders (can likely estimate profitability)
2. Those needing to rely on seismologists’ reports: Outsiders
Motivation?
It might seem intuitively obvious that outsiders should not bid.
However:
Consider the case of one Insider and one outsider (the simplest setting).
Think of your optimal reply as an Insider in a situation where the Outsider is (a) active and (b) inactive.
Can you see why case (b) can not be supported as a Nash equilibrium outcome?
Now suppose there is a Nash equilibrium in which the Insider and Outsider(s) enter bids. Suppose the outsider is using a pure strategy. What is your optimal reply as an insider?
Now: given that strategy for the insider, what is your optimal reply as an outsider? And what follows from your answer?
Bidding game: What is the proposition?
Consider the case of one Insider and one outsider (the simplest setting).
Think of your optimal reply as an Insider in a situation where the Outsider is (a) active and (b) inactive.
Can you see why case (b) can not be supported as a Nash equilibrium outcome?
Proof porposition of bidding game
Extension where oil tracks can also be unprofitable
Markets with incomplete information: Consumer search
What is the setup and what are the two polar cases?
Consumer search: Sequential search
What is the model?
Consumer search: Sequential search
What is p*/ETC?
Consumer search: Sequential search
Intuition
Consumer search: Sequential search
Intuition
Consumer search: Sequential search
Can there be a NE in prices in which firms set different prices?
Consumer search: Salop-Stiglitz model
Consumer search: Salop-Stiglitz model
