Costly Signalling in Auctions<xref ref-type="fn" rid="FN1">-super-1</xref>

This paper analyses a dynamic auction in which a fraction of each bid is sunk. Jump bidding is used by bidders to signal their private information. Bluffing (respectively sandbagging) occurs when a weak (respectively strong) player seeks to deceive his opponent into thinking that he is strong (respectively weak). A player with a moderate valuation bluffs by making a high bid and drops out if his bluff is called. A player with a high valuation should vary his bids and should sometimes sandbag by bidding low, to induce lower bids by his rival. Copyright 2007, Wiley-Blackwell.