Rationalizable bidding in first-price auctions. (Q1413210)

Strategically sophisticated bidding is studied in first price auctions without assuming equilibrium behavior. In particular, interim rationalizable bids are analyzed in symmetric first-price auctions with interdependent values and affiliated signals. It is shown that (1) every nonzero bid below the equilibrium is rationalizable, (2) some bids above the equilibrium are rationalizable and (3) the upper bound on rationalizable bids of a given player is a non-decreasing function of his signal. In the special case of independent signals and quasi-linear valuation functions, the least upper bound on rationalizable bids is concave and hence rationalizability implies substantial proportional shading for high valuations, but is consistent with negligible proportional shading for low valuations.