Creating a winner’s curse via jump bids
David Ettinger2016, Review of Economic Design
Sign up for access to the world's latest research
checkGet notified about relevant papers
checkSave papers to use in your research
checkJoin the discussion with peers
checkTrack your impact
Related papers
A theory of jump bidding in ascending auctions
Journal of Economic Behavior & Organization, 2007
Jump bidding is a commonly observed phenomenon that involves bidders in ascending auctions submitting bids higher than required by the auctioneer. Such behavior is typically explained as due to irrationality or to bidders signaling their value. We present field data that suggests such explanations are unsatisfactory and construct an alternative model in which jump bidding occurs due to strategic concerns and impatience. We go on to examine the impact of jump bidding on the outcome of ascending auctions in an attempt to resolve some policy disputes in the design of ascending auctions. JEL Codes: D44, C90
The effect of bidding information in ascending auctions
Working Papers, 2011
We study the effect of the drop out and reenter information in an environment where bidders" values involve both private and common value components. We find that (1) providing bidding information does not have a significant effect on expected revenue and expected efficiency. (2) The effect of information on winner"s expected profit depends on the range of uncertainty of the common value component and the level of Nash profit prediction, which the auctioneer has no a priori knowledge. In our environment, where bidders have a private component to their value and the auction takes place in ascending clock format, (3) bidders do not suffer from the winner"s curse when information is not provided. (4) Information substantially increases the variability of revenue and winner"s profit when the range of uncertainty of the common value component is large. Bidders" response to information depends on the range of uncertainty.
11-13 The E ffec t of Bidding Information in Ascending Auctions
2011
We study the effect of the drop out and reenter information in an environment where bidders" values involve both private and common value components. We find that (1) providing bidding information does not have a significant effect on expected revenue and expected efficiency. (2) The effect of information on winner"s expected profit depends on the range of uncertainty of the common value component and the level of Nash profit prediction, which the auctioneer has no a priori knowledge. In our environment, where bidders have a private component to their value and the auction takes place in ascending clock format, (3) bidders do not suffer from the winner"s curse when information is not provided. (4) Information substantially increases the variability of revenue and winner"s profit when the range of uncertainty of the common value component is large. (5) Bidders" response to information depends on the range of uncertainty.
Dominant strategies, superior information, and winner's curse in second-price auctions
International Journal of Game Theory, 2002
In a general model of common-value second-price auctions with di¤erential information, we show equivalence between the following characteristics of a bidder: (i) having a dominant strategy; (ii) possessing superior information; (iii) being immune from winner's curse. When a dominant strategy exists, it is given by the conditional expectation of the common value with respect to bidder's information …eld; if the dominant strategy is used, other bidders cannot make a pro…t.
An experimental test of alternative models of bidding in ascending auctions
International Journal of Game Theory, 2005
The theory and behavior of the clock version of the ascending auction has been well understood for at least 20 years. The more widely used oral outcry version of the ascending auction that allows bidders to submit their own bids has been the subject of some recent controversy mostly in regard to whether or not jump bidding, i.e. bidders submitting bids higher than required by the auctioneer, should be allowed. Isaac, shows that the standard equilibrium for the clock auction does not apply to the non-clock format and constructs an equilibrium bid function intended to match with field data on ascending auctions. In this study, we will use economic experiments to provide a direct empirical test of that model while simultaneously providing empirical evidence to resolve the policy disputes centered around the place of jump bidding in ascending auctions.
The Affiliation Effect in First-Price Auctions
Econometrica, 2005
We study the monotonicity of the equilibrium bid with respect to the number of bidders n in affiliated private-value models of first-price sealed-bid auctions and prove the existence of a large class of such models in which the equilibrium bid function is not increasing in n. We moreover decompose the effect of a change in n on the bid level into a competition effect and an affiliation effect. The latter suggests to the winner of the auction that competition is less intense than she had thought before the auction. Since the affiliation effect can occur in both private-and common-value models, a negative relationship between the bid level and n does not allow one to distinguish between the two models and is also not necessarily (only) due to bidders taking account of the winner's curse.
The Winner's Curse and Public Information in Common Value Auctions: Reply
American Economic Review, 1999
Epic Fail: How Below-Bid Pricing Backfires in Multiunit Auctions
2018
Ascending (or second-price) and uniform-price multiunit auctions have appealing theoretical properties if bidders are symmetric and bid competitively. However, auction designers have long been skeptical about their use in practice. First, asymmetries due to value advantage in ascending (or second-price) auctions with a large common-value component can generate asymmetric equilibria with low revenues. Second, both ascending and uniform auctions are susceptible to collusion. Sequential ascending auctions make it especially easy to form and coordinate bidding rings. Third, uniform auctions are susceptible to low-price equilibria in which bidders can commit to coordinate on high bids for initial units and low bids for final, price-setting units in equilibrium what we call crank-handle bidding. All three of these patterns have been observed separately in certain settings among sophisticated and experienced bidders. We document what we believe is the first case of all three of these pheno...
The Wait-and-See Option in Ascending Price Auctions
Journal of the European Economic Association, 2004
Ascending auctions offer agents the option to wait and see before deciding to drop out. We show that in contexts where as time proceeds agents get finer and finer estimates of their valuations, incentives to drop out at one's expected valuation are weak: it is optimal for agents to wait and see. We first illustrate the claim in a private value setting. We next analyze an interdependent value setting in which this wait and see option results in an imperfect information aggregation. We also analyze the implications for the seller's revenue, and show that the ascending format may dominate the second-price format, independently of the date at which the second price auction is run.
How to Boost Revenues in First-Price Auctions? The Magic of Disclosing Only Winning Bids from Past Auctions
2015
A long-term auctioneer who repeatedly sells identical or similar items might disclose selective information about past bidding. We present an experimental design to evaluate the revenue implications of two common policies: disclosure of all past bids versus winning bids only. The analysis of our data points out that disclosing winning bids dominates in terms of revenue generation. We propose that when presented historical winning bids some of the bidders mistakenly best-respond to that distribution, failing to realize that winning bids are not representative of all bids. In the steady state, this selection bias results in higher auction revenues relative to when all bids are presented. On the theory side, the findings challenge the predictive power of Bayesian Nash Equilibrium based on rational bidders (that would yield revenue equivalence). On the market design side, they underline the role of historical market information as a key design choice. PRELIMINARY AND INCOMPLETE DRAFT. D...
Related papers
Value Construction and Bidding Behavior in Descending and Ascending Auctions
CO 80309-0419. This research is based on the first author's doctoral dissertation.
FIRST-PRICE COMMON VALUE AUCTIONS: BIDDER BEHAVIOR AND THE “WINNER'S CURSE”
Economic Inquiry, 1989
winner's curse in early auction periods as high bidders consistently lose money, failing to account for the adverse selection problem inherent in winning the auction. With experience and bankruptcy on the part of the worst offenders, subjects earn positive average profits, but these are far below Nash equilibrium predictions as a sizable minority of bicis exceed the expected value of the item conditional on having the highest estimate of value. Individual bidding behavior is explored to identifr the mechanism whereby market outcomes no longer display the worst effects of the winner's curse.
The Aliation Eect in First-Price Auctions
We study the monotonicity of the equilibrium bid with respect to the number of bidders n in aliated private value models of first-price sealed-bid auctions and prove the existence of a large class of such models in which the equilibrium bid function is not increasing in n. We moreover decompose the eect of a change in n on the bid level into a competition eect and an aliation eect . The latter suggests to the winner of the auction that competition is less intense than she had thought before the auction. Since the aliation eect can occur in both private and common value models, a negative relationship between the bid level and n does not allow one to distinguish between the two models and is also not necessarily (only) due to bidders taking account of the winner's curse.
Pre-auction offers in asymmetric first-price and second-price auctions
Games and Economic Behavior, 2008
We consider "must-sell" auctions with asymmetric buyers. First, we study auctions with two asymmetric buyers, where the distribution of valuations of the strong buyer is "stretched" relative to that of the weak buyer. Then, it is known that inefficient first-price auctions are more profitable for the seller than efficient second-price auctions. This is because the former favor the weak buyer. However, we show that the seller can do one better by augmenting the first-price auction by a pre-auction offer made exclusively to the strong buyer. Should the strong buyer reject the offer, the object is simply sold in an ordinary first-price auction. The result is driven by the fact that the unmodified first-price auction is too favorable to the weak buyer, and that the pre-auction offer allows some correction of this to the benefit of the seller. Secondly, we show quite generally that pre-auction offers never increase the profitability of second-price auctions, since they introduce the wrong kind of favoritism from the perspective of seller profits.
Harmful competition in all-pay auctions
Mathematical Social Sciences, 2009
The Effect of Timing on Jump Bidding in Ascending Auctions
Production and Operations Management, 2009
We investigate the role of timing in ascending auctions under the premise that time is a valuable resource. Traditional models of the English auction ignore timing issues by assuming that the auction occurs instantaneously. However, when auctions are slow, as internet auctions used for procurement often are, there are significant opportunity or monitoring costs to bidders, and the choice of the size of the jump bid becomes a strategic decision. We study this choice in the experimental laboratory by systematically varying the opportunity costs associated with fast bidding. We find that when time is more valuable bidders respond by choosing larger jump bids. Surprisingly, the economic performance of the auction is not significantly affected. We develop a simple model of ascending auctions with impatient bidders that provides insights into the effect jump bids have on auction performance.
The winner’s curse in auctions with losses
Mind & Society
The winner's curse in auctions might emerge from asymmetric information and/or from some willingness to pay for winning. This article is based on a sealed-bid common value first price auction, with a net loss for the subject with the second highest bid. The results show the existence of a trade-off between the magnitude of the potential loss and the willingness to pay for the victory. In the context of public procurement these results suggest that companies are willing to overpay small contracts to gain a sort of 'free advertising', whereas this is not the case when the contracts are large.
Chapter 23 Some Results on Anti-Competitive Behavior in Multi-Unit Ascending Price Auctions
Handbook of Experimental Economics Results, 2008
How to Win Twice at an Auction. On the Incidence of Commissions in Auction Markets
SSRN Electronic Journal, 2000
We analyze the welfare consequences of an increase in the commissions charged by intermediaries in auction markets. We argue that while commissions are similar to taxes imposed on buyers and sellers the question of incidence deserves a new treatment in auction markets. We show that an increase in commissions makes sellers worse o¤, but buyers may strictly gain. The results are therefore strikingly di¤erent from the standard result that all consumers weakly lose after a tax or a commission increase. Our results are useful for evaluating compensation in price …xing conspiracies; in particular they suggest that the method used to distribute compensations in the class action against auction houses Christie's and Sotheby's was misguided.
Loading Preview
Sorry, preview is currently unavailable. You can download the paper by clicking the button above.