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MiS Preprint

Bidding with Coordination Risks

Timo Ehrig, Jürgen Jost and Rosemarie Nagel


We propose a game to study the interaction of bidding and coordination uncertainty. Two players bid under strategic market game rules over shares of a joint project after obtaining noisy signals about its value. Each player has the alternative option to refrain from bidding and to get a safe outside payoff. Ex ante there is no motive to be the only investor, since this is associated with a low project value. We prove the existence of a unique perfect Bayesian equilibrium by using techniques from the calculus of variations. Because of the coordination risk a joint threshold emerges above which it is optimal for agents to invest. Furthermore, this risk dampens competition and therefore, compared to a standard strategic market game with incomplete information, bids are substantially lower, especially when the expected project value is low. From a technical point of view, we are the first to study a global game with continuous strategies containing strategic complements as well as strategic substitutes.

Jun 23, 2017
Jun 23, 2017
Coordination Uncertainty, Global Games, Strategic Market Games, Strategic Uncertainty, Price Formation, Common Projects, Joint Investments

Related publications

2017 Repository Open Access
Timo Ehrig, Jürgen Jost and Rosemarie Nagel

Bidding with coordination risks