Equilibrium Selection with Risk Dominance in a Multiple-unit Unit Price Auction

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Abstract

This paper uses an adapted version of the linear tracing procedure, suggested by Harsanyi and Selten (1988), in order to discriminate between two types of multiple Nash equilibria. Equilibria of the same type are pay-off equivalent in the analysed multiple-unit unit price auction where two sellers compete in order to serve a fixed demand. The equilibria where the firm with the larger capacity bids the maximum price, serves the residual demand and is undercut by the low capacity firm that sells its total capacity risk dominate the equilibria where the roles are interchanged.
Original languageEnglish
Place of PublicationFrederiksberg
PublisherDepartment of Economics. Copenhagen Business School
Number of pages12
Publication statusPublished - 2008
SeriesWorking Paper / Department of Economics. Copenhagen Business School
Number2-2008

Keywords

  • Equilibrium selection
  • Risk dominance
  • Auctions

Cite this

Boom, A. (2008). Equilibrium Selection with Risk Dominance in a Multiple-unit Unit Price Auction. Department of Economics. Copenhagen Business School. Working Paper / Department of Economics. Copenhagen Business School, No. 2-2008