Are Disadvantaged Bidders Doomed in Ascending Auctions?

A bidder is said to be advantaged if she has a higher expected valuation of the auction prize than her competitor. When the prize has a common-value component, a bidder competing in an ascending auction against an advantaged competitor bids especially cautiously and, hence, the advantaged bidder wins most of the time. However, contrary to what is often argued, a disadvantaged bidder still wins with positive probability, even if his competitor’s advantage is very large and even if the disadvantaged bidder has the lowest actual valuation ex-post. Therefore, the disadvantaged bidder has an incentive to participate in the auction, and the presence of a bidder with a small advantage does not have a dramatic e¤ect on the seller’s revenue. JEL Nos: D44 (auctions).