Non-bidding equilibrium in an ascending core-selecting auction

This paper investigates the perfect Bayesian equilibrium in an ascending-price core-selecting auction, which is recently used in some countriesʼ spectrum license auctions. We suppose that there are two identical items, two small bidders, and one large bidder. The small bidders demand only one unit of the item, whereas the large bidder wants both units. Package bidding ensures that the large bidder faces no exposure problem and behaves truthfully. However, one of the small bidders stops bidding at the beginning in the equilibrium. Although small bidders generally face the free-rider problem and have incentives to underbid, once a bidder is the only small one remaining, he bids truthfully. Stopping early induces the remaining bidder to behave truthfully. Hence, each small bidder wants to be the first to stop bidding. The free-rider problem is considerably mitigated when there are many small bidders. ► We examine the perfect Bayesian equilibrium in an ascending core-selecting auction. ► In the equilibrium, small bidders attempt to stop bidding at the initial price. ► The equilibrium is unique under certain conditions. ► The equilibrium is inefficient and low revenue problem arises. ► The efficiency and revenue are considerably improved in the case of many bidders.