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The Spite Motive and Equilibrium Behavior in Auctions

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Author Info
John Morgan (University of California, Berkeley)
Ken Steiglitz (Princeton University)
George Reis (Princeton University)

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Abstract

We study auctions where bidders have independent private values but attach a disutility to the surplus of rivals, and derive symmetric equilibria for first-price, second-price, English, and Dutch auctions. We find that equilibrium bidding is more aggressive than standard predictions. Indeed, in second-price auctions it is optimal to bid above one's valuation; that is, bidding "frenzies" can arise in equilibrium. Further, revenue equivalence between second-price and first-price auctions breaks down, with second-price outperforming first-price. We also find that strategic equivalence between second-price and English auctions no longer holds, although they remain revenue equivalent. We conclude that spiteful bidding rationalizes anomalies observed in laboratory experiments across the four auction forms better than the leading alternatives.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): contributions.2 (2003)
Issue (Month): 1 ()
Pages:
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Handle: RePEc:bpj:bejeap:v:contributions.2:y:2003:i:1:n:5

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Related research
Keywords: auctions; spite; behavior;

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Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions

Cited by:
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  1. James Andreoni & Yeon-Koo Che & Jinwoo Kim, 2006. "Asymmetric information about rivals' types in standard auctions: An experiment," Discussion Papers 0506-27, Columbia University, Department of Economics. [Downloadable!]
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  2. repec:att:wimass:192066 is not listed on IDEAS
  3. Emel Filiz & Erkut Y. Ozbay, 2005. "Auctions with Anticipated Regret," Experimental 0511006, EconWPA. [Downloadable!]
  4. Richard Engelbrecht-Wiggans & Elena Katok, 2007. "Regret in auctions: theory and evidence," Economic Theory, Springer, vol. 33(1), pages 81-101, October. [Downloadable!] (restricted)
  5. Axel Ockenfels & Reinhard Selten, 2004. "Impulse Balance Equilibrium and Feedback in First Price Auctions," Working Paper Series in Economics 7, University of Cologne, Department of Economics. [Downloadable!]
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  6. Kirchkamp, Oliver & Reiss, J. Philipp & Sadrieh, Abdolkarim, 2008. "A pure variation of risk in private-value auctions," Research Memoranda 050, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
  7. Yannick Gabuthy & Nicolas Jacquemet & Nadège Marchand, 2008. "Does Resorting to Online Dispute Resolution Promote Agreements? Experimental Evidence," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00259453_v1, HAL. [Downloadable!]
    Other versions:
  8. Roider, Andreas & Schmitz, Patrick W., 2007. "Auctions with Anticipated Emotions: Overbidding, Underbidding, and Optimal Reserve Prices," CEPR Discussion Papers 6476, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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