A Theory of Signalling Auctions

Abstract

The essential structural characteristic of an auction is that a bidder will either win or lose, and there is a different payoff function for each of these two outcomes. In this paper, a symmetric auction model is formulated and analyzed as a game with incomplete information. Special cases of this model include many price auction arrangements, but the specification allows for "bidding" competition on the basis of non-price signals such as design proposals, educational credentials, etc. Common properties and economic applications of such signalling auction models are discussed.