Journal Article

Costly Signalling in Auctions

Johannes Hörner and Nicolas Sahuguet

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 74, issue 1, pages 173-206
Published in print January 2007 | ISSN: 0034-6527
Published online January 2007 | e-ISSN: 1467-937X | DOI:
Costly Signalling in Auctions

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  • Information, Knowledge, and Uncertainy
  • Market Structure and Pricing


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This paper analyses a dynamic auction in which a fraction of each bid is sunk. Jump bidding is used by bidders to signal their private information. Bluffing (respectively sandbagging) occurs when a weak (respectively strong) player seeks to deceive his opponent into thinking that he is strong (respectively weak). A player with a moderate valuation bluffs by making a high bid and drops out if his bluff is called. A player with a high valuation should vary his bids and should sometimes sandbag by bidding low, to induce lower bids by his rival.

Keywords: D44; D82

Journal Article.  19016 words.  Illustrated.

Subjects: Information, Knowledge, and Uncertainy ; Market Structure and Pricing

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