9262015-07 , Institute of Economic Research, Kyoto University
This study analyzes the equilibrium of core-selecting auctions under incomplete information. We consider the ascending proxy auction of Ausubel and Milgrom (2002) in a stylized environment with two goods and three bidders: two local and one global. Local bidders with a sufficiently high value bid almost truthfully. In contrast, local bidders with a sufficiently low value submit a zero bid because of free-riding incentive. We also provide equilibrium with reserve prices, and show that a reserve price for local bidders improve both allocative efficiency and revenue in equilibrium.