Abstract:

A second-price auction is considered, in which one of the bidders is a team consisting of several individuals. For these individuals, the auctioned item is a public good, in the sense that either all of them win it together or all lose. They need to agree on a bid, and on splitting the payment to the auctioneer if they win the item. If the competition that the team faces is fierce enough, then the model has a unique equilibrium. The equilibrium, which is symmetric, generalizes the weak dominance equilibrium of the ordinary second-price auction and satisfies intuitive comparative static properties with respect to the team’s size. A certain modification of the model gives rise to asymmetric equilibria, in which only one team member participates in the auction and everybody else free ride.