A choice of auction format in seller cheating: a signaling game analysis |
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Authors: | Takahiro Watanabe Takehiko Yamato |
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Institution: | (1) Department of Business Administration, Graduate School of Social Science, Tokyo Metropolitan University, 1-1 Miami-Osaka, Hachioji, Tokyo 192-0397, Japan;(2) Department of Value and Decision Science, Graduate School of Decision Science and Technology, Tokyo Institute of Technology, 2-12-1-W9-41 Ookayama, Meguro-ku, Tokyo 152-8552, Japan;(3) Department of Social Engineering, Graduate School of Decision Science and Technology, Tokyo Institute of Technology, 2-12-1-W9-41 Ookayama, Meguro-ku, Tokyo 152-8552, Japan |
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Abstract: | In this paper, we examine which auction format, first-price or second-price, a seller will choose when he can profitably cheat
in a second price auction by observing all bids by possible buyers and submitting a shill bid as pretending to be a buyer.
We model this choice of auction format in seller cheating as a signaling game in which the buyers may regard the selection
of a second price auction by the seller as a signal that he is a shill bidder. By introducing trembling-hand perfectness as
a refinement of signaling equilibrium, we find two possible strictly perfect signaling equilibria. One is a separating equilibrium
in which a noncheating honest seller selects a first price auction and a cheating seller does a second price auction. In another
pooling equilibrium, however, both cheating and non-cheating sellers select a second price auction. The conclusion that a
seller chooses a second price auction even if he cannot cheat is in contrast to the previous literature, which focused on
the case of independent values.
We thank an anonymous referee for useful comments that have improved the paper. This research was partially supported by the
Ministry of Education, Science, Sports and Culture, Grant-in-Aid for Scientific Research (B) 15310023 and (C) 18530139. |
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Keywords: | Auction Cheating Signaling game |
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