Asymmetric Equilibria in the Open Ascending-Price Auction with Shared Allocative Externalities∗

We examine bidding behavior in an open ascending-price auction, without a binding reserve price, in which allocation to a particular bidder imposes a common payoff-reducing externality on the remaining two bidders. An example consists of a “potential entrant” bidding for an innovation against two “incumbents”. The public good aspect to pre-empting the potential entrant is shown to result in two kinds of equilibria. First, a generic symmetric equilibrium exists in which (i) a lowest subset of incumbent types do not participate, (ii) an intermediate subset of types participate only in order to earn the option to pre-empt the entrant, and (iii) the highest subset of types seek to outbid both opponents. Second, and more interestingly, if the externality is only moderately large (or larger), then there also exist asymmetric equilibria in which all types of one incumbent participates, while the low and intermediate types of the other one does not participate. The significance of asymmetric participation is discussed.