On the benefits of dynamic bidding when participation is costly

Consider a second-price auction with costly bidding in which bidders with i.i.d. private values have multiple opportunities to bid. If bids are observable, the resulting dynamic-bidding game generates greater expected total welfare than if bids were sealed, for any given reserve price. Making early bids observable allows high-value bidders to signal their strength and deter others from entering the auction. Nonetheless, as long as the seller can commit to a reserve price, expected revenue is higher when bids are observable than when they are sealed.

Duke Scholars

Author David McAdams Fuqua School of Business