Sequential English Auctions with Shill Bidding

Sequential English Auctions with Shill Bidding
Author(s): Wang, Wenli and Hidvegi, Zoltan and Whinston, Andrew B.
Year: 2005
Paper Number: GBS-DIA-2005-004
Goizueta Department: Decision and Information Analysis

Abstract

Shill bidding, where a seller masquerades as a buyer bidding for her own item to inflate the price, has challenged the classical auction theories. We show that with the possibility of shill bidding, a multi-round single-unit English auction has neither purenor mixed- strategy Perfect Bayesian Equilibria (PBE) when there is no gap between the seller's valuation and the lowest possible buyer valuation. If a PBE exists in the gap case, the reserve price in any round cannot be higher than the lowest possible buyer valuation.