Equilibrium Selection in Second-Price Common-Value Auctions

Abstract

This paper considers the problem of equilibrium selection in a second-price auction with two bidders. We show that for each ex post equilibrium in continuous and undominated strategies of the auction, a sequence of almost common-value auctions can be constructed such that each of them possesses a unique undominated and continuous equilibrium and the corresponding sequence of equilibria converges to that ex post equilibrium. Therefore, no equilibrium selection of this model based on perturbations seems to be more convincing than others.