Numerical simulations of asymmetric first-price auctions

Gadi Fibich*, Nir Gavish

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

The standard method for computing the equilibrium strategies of asymmetric first-price auctions is the backward-shooting method. In this study we show that the backward-shooting method is inherently unstable, and that this instability cannot be eliminated by changing the numerical methodology of the backward solver. Moreover, this instability becomes more severe as the number of players increases. We then present a novel boundary-value method for computing the equilibrium strategies of asymmetric first-price auctions. We demonstrate the robustness and stability of this method for auctions with any number of players, and for players with mixed types of distributions, including distributions with more than one crossing. Finally, we use the boundary-value method to study large auctions with hundreds of players, to compute the asymptotic rate at which large first-price and second-price auctions become revenue equivalent, and to study auctions in which the distributions cannot be ordered according to first-order stochastic dominance.

Original languageEnglish
Pages (from-to)479-495
Number of pages17
JournalGames and Economic Behavior
Volume73
Issue number2
DOIs
StatePublished - Nov 2011

Keywords

  • Asymmetric auctions
  • Boundary value method
  • Large auctions
  • Simulations
  • Stability

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