Bidding Clubs in First-Price Auctions

Title: Bidding Clubs in First-Price Auctions

Research Question: Can a group of bidders in a first-price auction benefit from coordinating their bids, and if so, how can they do it?

Methodology: The researchers modeled the situation as a Bayesian game, which is a type of game where each player makes a decision based on their own private information and their beliefs about the other players' information. They considered the case where a set of bidders form a "bidding club" and conduct a pre-auction within the club to decide on a strategy for the primary auction. They analyzed this scenario in the context of first-price auctions.

Results: The researchers found that there exists a Bayesian-Nash equilibrium where agents choose to participate in bidding clubs when invited and truthfully declare their valuations to the coordinator. They also showed that the existence of bidding clubs benefits all agents, including those outside the club, in several ways.

Implications: These findings suggest that bidding clubs can be a powerful tool for bidders in first-price auctions. By coordinating their bids, bidders can potentially increase their chances of winning the auction and pay less than they would if they bid independently. This could lead to more efficient market outcomes and better results for all participants. However, it's important to note that the formation of bidding clubs also raises ethical and competition issues, which need to be carefully considered and regulated.

Link to Article: https://arxiv.org/abs/0201017v1 Authors: arXiv ID: 0201017v1