A Laboratory Test of an Auction with Negative Externalities (original) (raw)

Auctions with external incentives: experimental evidence

Int. J. Game Theory, 2020

We consider auctions where bidders have external incentives and focus on the case where their valuations in the auction are positively correlated with their productivity which matters in a second stage job market. We study how this affects bidding behavior and wages in the job market and proceed to test the model’s implication in an experiment where treatments differ according to which bids are disclosed. Our results broadly confirm the theoretical prediction that bidders tend to overbid, and their bidding behavior and wages are influenced by the disclosure rule. The data also suggests that the dispersion in worker wages is affected by the disclosure rule, suggesting the importance of reputational bidding.

Theoretical and experimental analysis of auctions with negative externalities

Games and Economic Behavior, 2013

We investigate a model in which a single bidder (the "entrant"), on winning the auction, imposes a negative externality on two "regular" bidders. In an ascending price clock auction, in equilibrium when all bidders are active a regular bidder free rides, dropping out before reaching his private value. Despite this free riding problem, in almost all cases, the item is ex post efficiently assigned. In contrast, in a first-price sealed bid auction incentives for free riding and aggressive bidding coexist, leading to a lower ex post efficiency. The experiment shows minimal free riding in the clock auction, but as predicted, when a single regular bidder is left competing with the "entrant" he bids up to his value plus the externality. In first-price auctions, as predicted regular bidders bid more aggressively than the "entrant," and both bid higher than in auctions with no externality.

Don’t Fear the Simplicity-An Experimental Analysis of Auctions

2017

5 I evaluate the performance of four static sealed-bid package auctions in an experimental 6 setting with complementarities. The valuation model comprises two items, and three bidders: 7 two ‘local’ bidders demand one item only, while the third (global) bidder only wants both. 8 The rules I compare include the Vickrey and first-price auctions, Vicrkey Nearest Rule 9 and the Reference Rule. Auction-level tests find the first-price auction revenue dominant 10 overall without losing efficiency, while the Vickrey auction performs worst; the other two 11 rules rank intermediate. Bidder-level tests of the experimental data reject the competitive 12 equilibrium bidding functions: overbidding is widespread in all four auctions, and bidders 13 are averse to submitting boundary bids. In core-selecting auctions bidders do not revert 14 to truth-telling rules of thumb. I also observe behavior consistent with collusive bidding 15 in the Vickrey auction. Contrary to theoretical predictions, the V...

The role of reference prices in experimental auctions

Economics Letters, 2008

We examine the role of reference prices (field prices) in willingness to pay studies involving experimental auctions. Using a 2nd price Vickrey auction, we find that provision of reference prices increases bid values.

An Experimental Investigation of Auctions and Bargaining in Procurement

SSRN Electronic Journal, 2012

In reverse auctions, buyers often retain the right to bargain further concessions from the winner. The optimal form of such procurement is an English auction followed by an auctioneer's option to engage in ultimatum bargaining with the winner. We study behavior and performance in this procurement format using a laboratory experiment. Sellers closely follow the equilibrium strategy of exiting the auction at their costs and then accepting strictly profitable offers. Buyers generally exercise their option to bargain according to their equilibrium strategy, but their take-it-or-leave-it offers vary positively with auction prices when they should be invariant. We explain this deviation by modeling buyers' subjective posteriors regarding the winners' costs as distortions, calculated using a formulation of probability weighting, of the Bayesian posteriors. We show alternative models based upon risk aversion and anticipated regret can't explain these price dependencies.

Making uncompetitive auctions competitive: a survey of experiments

2009

In the past 15 years, governments around the world have often used auctions to sell scarce licenses to operate in markets. In many of these auctions, the number of interested competitors is relatively small compared to the number of available licenses. Auction design is crucial in such uncompetitive circumstances. Details of the design a¤ect participants' decisions to compete seriously or not. Such decisions are important for the industry structure and the e¢ ciency of the aftermarket as well as for the revenue raised in the auction. This paper provides a survey of emerging experimental work on the question how competition can be stimulated in uncompetitive license auctions. We consider papers that deal with the performance of standard auctions (such as the simultaneous ascending auction and the discriminative auction) in uncompetitive circumstances. We also discuss papers that investigate the performance of some less known auctions (such as the Anglo-Dutch auction, the Amsterdam auction, and Right-To-Choose auctions) that actively seek to foster competition among bidders who would not compete in standard auctions.

Auctioning Process Innovations when Losers' Bids Determine Royalty Rates

We consider a licensing mechanism for process innovations that combines a li-cense auction with royalty contracts to those who lose the auction. Firms' bids are dual signals of their cost reductions: if the bid wins the auction, it signals the own cost reduction to rival oligopolists, whereas if it loses, it influences the beliefs of the innovator who uses that information to set the royalty rate. We derive conditions for existence of a separating equilibrium, explain why a sufficiently high reserve price is essential for such an equilibrium, and show that the innovator generally profits from the proposed mechanism.

Investment incentives in auctions: an experiment

Experiments and Competition Policy, 2009

We experimentally analyze first and second price auctions where one bidder can achieve a comparative advantage by investment prior to the auction. We find that, as predicted by theory, bidders invest more often prior to second price auctions than prior to first price auctions. In both auction formats bidding is more aggressive than the equilibrium prediction. However, bidding is closer to equilibrium than in control treatments where the comparative advantage is exogenous.

Auctioning Process Innovations when Losers’ Bids Determine Royalty Rates

2009

We consider a licensing mechanism for process innovations that combines a license auction with royalty contracts to those who lose the auction. Firms’ bids are dual signals of their cost reductions: the winning bid signals the own cost reduction to rival oligopolists, whereas the losing bid influences the beliefs of the innovator who uses that information to set the royalty rate. We derive conditions for existence of a separating equilibrium, explain why a sufficiently high reserve price is essential for such an equilibrium, and show that the innovator generally benefits from the proposed mechanism.

On the impact of low-balling: Experimental results in asymmetric auctions

International Journal of Game Theory, 2002

The paper reports on a series of asymmetric auction experiments with private-independent values and two buyers. Maskin and Riley (2000) showed, under some conditions, that if one buyer has a greater probability than the other of not being able to bid, first-price auctions could yield lower revenues to the seller than second-price auctions. The data rejected this prediction because of an important overbidding when subjects received low values in firstprice auctions. In this asymmetric setting, the observed overbidding cannot be explained by the usual risk aversion hypothesis and the detection of a learning pattern indicates that subjects used more an adaptive behaviour than a static one. An ad hoc bidding strategy for the buyers who are the most likely to bid explains the observed low bids better than the risk neutral equilibrium strategy. Finally, as subjects appear to have bid in equilibrium as if there were two other competitors instead of only one, their bidding behaviour can be thought to have displayed an over anxiousness about winning.