Bids with Twists: First-Price, Sealed-Bid Auctions with External Valuations and Bid Ceilings

Abstract

We introduce two modifications to the First-Price, Sealed-Bid Auction: external valuations and bid ceilings. Under simplifying assumptions, we prove that both additions may increase the bidder's utility by reducing the bid value. We also demonstrate via computer simulations that the above effects hold for many distributions. We finally consider asymmetric auctions with varying distributions of external valuations and deduce that bid ceilings may present a trade-off between efficiency and fairness.