Testing Equilibrium Behaviour At First-Price, Sealed-Bid Auctions With Discrete Bid Increments

Within the independent private-values paradigm, we derive the equilibrium implications of purposeful bidding behaviour at single-unit, first-price, sealed-bid auctions when discrete increments are imposed on bidding. While equilibrium purposeful behaviour with discrete bid increments is different from that which would obtain were continuous variation in bids permitted, these differences typically disappear as the bid increments go to zero. But discrete bid increments are a common feature at many real-world auctions. Moreover, their presence can simplify computation when estimating and testing auction models. Our approach fits within a model of incomplete inference and allows us to test sequentially for symmetric, equilibrium purposeful behaviour as well as asymmetric, equilibrium purposeful behaviour. We demonstrate the utility of the approach by applying it to data from laboratory experiments.
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