A Theory of Costly Sequential Bidding

Kent D. Daniel and David Hirshleifer

March 2018


We model sequential bidding in a private value English auction when it is costly to submit or revise a bid. We show that, even when bid costs approach zero, bidding occurs in repeated jumps, consistent with certain types of natural auctions such as takeover
contests. In contrast with most past models of bids as valuation signals, every bidder has
the opportunity to signal and increase the bid by a jump. Jumps communicate bidders’
information rapidly, leading to contests that are completed in a few bids. The model
additionally predicts informative delays in the start of bidding, that the probability of a
second bid decreases in, and the jump increases in the first bid, that objects are sold to
the highest valuation bidder; and revenue and efficiency relationships between different

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