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An Equilibrium Model of the First-Price Auction with Strategic Uncertainty: Theory and Empirics (2202.07517v2)
Published 15 Feb 2022 in econ.TH and econ.EM
Abstract: In many first-price auctions, bidders face considerable strategic uncertainty: They cannot perfectly anticipate the other bidders' bidding behavior. We propose a model in which bidders do not know the entire distribution of opponent bids but only the expected (winning) bid and lower and upper bounds on the opponent bids. We characterize the optimal bidding strategies and prove the existence of equilibrium beliefs. Finally, we apply the model to estimate the cost distribution in highway procurement auctions and find good performance out-of-sample.