Frictions in internet auctions with many traders: A counterexample

- Peters and Severinov (2006) (PS) characterize a PBE in a competing auctions environment.
- PS environment is frictionless: all buyers are linked to all sellers.
- PS characterize a PBE using a simple bidding rule.
- We show that when frictions are present, the PS bidding rule is not efficient nor a PBE.
- Researchers should be cautious when using this rule in markets with frictions like eBay.

We show that when frictions are present, the Peters and Severinov (2006) (PS) bidding rule is no longer efficient nor a PBE of the PS game. Researchers should be cautious when using the PS bidding rule in markets with frictions like eBay.