Participation constraints in first-price auctions (Q6581891)

In this article, the authors present a general two-dimensional private setting on both values and participation costs in a first-price auction and characterize the equilibrium. Bidders can be heterogeneous in their types. The authors focus on the cutoff strategy, assuming that, all bidders participate whenever their private costs are less than or equal to the expected revenue from participating and show that there always exists an equilibrium in this general setting with two-dimensional types of ex-ante heterogeneous bidders. When bidders are ex-ante homogeneous, there is a unique symmetric equilibrium, but asymmetric equilibria may also exist. The authors provide conditions under which the equilibrium is unique (not only among symmetric ones). In the symmetric equilibrium, it is shown that the equilibrium cutoff of participation costs described above which bidders never participate, is lower when the distribution of participation costs is first-order stochastically dominated. The uniqueness is addressed in Section 4. Concluding remarks are given in Section 5.