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Strategic Implications of Uncertainty over One's Own Private Value in Auctions

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Author Info
Eric Bennett Rasmusen (Indiana University, Kelley School of Business)

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Abstract

A rational bidder in a private-value auction should be reluctant to incur the cost of perfectly estimating his value if it might not matter to the success of his bidding strategy. This can explain sniping---flurries of bids at the end of auctions---as the result of other bidders trying to avoid stimulating the victim into learning more about his value. The idea of value discovery also explains why a bidder might increase his bid ceiling in the course of an auction and why he would like to know the private values of other bidders.

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File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=1261&context=bejte
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Publisher Info
Article provided by Berkeley Electronic Press in its journal The B.E. Journal of Theoretical Economics.

Volume (Year): advances.6 (2006)
Issue (Month): 1 ()
Pages:
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Handle: RePEc:bpj:bejtec:v:advances.6:y:2006:i:1:n:7

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Related research
Keywords: auctions; private-value; sniping; internet auctions;

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

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Eric Rasmusen, 2007. "Getting Carried Away in Auctions as Imperfect Value Discovery," Working Papers 2007-05, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
    Other versions:
  2. Janssen, Maarten & Rasmusen, Eric, 2002. "Bertrand Competition under Uncertainty," Journal of Industrial Economics, Blackwell Publishing, vol. 50(1), pages 11-21, March. [Downloadable!] (restricted)
    Other versions:
  3. McAfee, R. Preston & McMillan, John, 1987. "Auctions with a stochastic number of bidders," Journal of Economic Theory, Elsevier, vol. 43(1), pages 1-19, October. [Downloadable!] (restricted)
  4. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July. [Downloadable!] (restricted)
  5. Hausch, Donald B & Li, Lode, 1993. "A Common Value Auction Model with Endogenous Entry and Information Acquisition," Economic Theory, Springer, vol. 3(2), pages 315-34, April.
  6. David Hirshleifer, 1989. "Facilitation of Competing Bids and the Price of a Takeover Target," University of California at Los Angeles, Anderson Graduate School of Management 1193, Anderson Graduate School of Management, UCLA. [Downloadable!]
  7. Engelbrecht-Wiggans, Richard, 2001. "The effect of entry and information costs on oral versus sealed-bid auctions," Economics Letters, Elsevier, vol. 70(2), pages 195-202, February. [Downloadable!] (restricted)
  8. Alvin E. Roth & Axel Ockenfels, 2002. "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," American Economic Review, American Economic Association, vol. 92(4), pages 1093-1103, September. [Downloadable!]
    Other versions:
  9. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June. [Downloadable!] (restricted)
  10. Charles D. Kolstad Rolando M. Guzman, . "Auction Equilibrium with Costly Information Acquisition," University of California at Santa Barbara, Economics Working Paper Series 17-97, Department of Economics, UC Santa Barbara. [Downloadable!]
    Other versions:
  11. Alvin E. Roth & Axel Ockenfels, 2000. "Last Minute Bidding and the Rules for Ending Second-Price Auctions: Theory and Evidence from a Natural Experiment on the Internet," NBER Working Papers 7729, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Nicola Persico, 2000. "Information Acquisition in Auctions," Econometrica, Econometric Society, vol. 68(1), pages 135-148, January.
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  13. Michael J. Fishman, 1988. "A Theory of Preemptive Takeover Bidding," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 88-101, Spring. [Downloadable!] (restricted)
  14. Lixin Ye, 2004. "Optimal Auctions with Endogenous Entry," The B.E. Journal of Theoretical Economics, Berkeley Electronic Press, vol. 0(1). [Downloadable!]
  15. Patrick Bajari & Ali Hortacsu, 2000. "Winner's Curse, Reserve Prices and Endogenous Entry: Empirical Insights from eBay Auctions," Econometric Society World Congress 2000 Contributed Papers 1927, Econometric Society. [Downloadable!]
  16. Thomas D. Jeitschko, 1998. "Learning in Sequential Auctions," Southern Economic Journal, Southern Economic Association, vol. 65(1), pages 98-112, July.
  17. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September. [Downloadable!] (restricted)
    Other versions:
  18. Eric Bennett Rasmusen, 2001. "Explaining Incomplete Contracts as the Result of Contract-Reading Costs," The B.E. Journal of Economic Analysis & Policy, Berkeley Electronic Press, vol. 0(1). [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Eric Rasmusen, 2007. "Getting Carried Away in Auctions as Imperfect Value Discovery," Working Papers 2007-05, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy. [Downloadable!]
    Other versions:
  2. Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," Economics Papers 2009-W05, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
  3. Sascha Füllbrunn, 2007. "Collusion or Sniping in simultaneous ascending Auctions," FEMM Working Papers 07025, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management. [Downloadable!]
  4. Christopher Cotton, 2008. "Multiple-bidding in auctions as bidders become confident of their private valuations," Working Papers 0902, University of Miami, Department of Economics. [Downloadable!]
    Other versions:
  5. Sascha Füllbrunn, 2009. "A comparison of Candle Auctions and Hard Close Auctions with Common Values," FEMM Working Papers 09019, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management. [Downloadable!]
  6. Dan Ariely & Axel Ockenfels & Alvin E. Roth, 2003. "An Experimental Analysis of Ending Rules in Internet Auctions," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  7. Tim Grebe & Radosveta Ivanova-Stenzel & Sabine Kröger, 2010. "Buy-It-Now prices in eBay Auctions - The Field in the Lab," Discussion Papers 294, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
  8. Tim Grebe & Radosveta Ivanova-Stenzel & Sabine Kröger, 2009. "Buy-it-Now Prices in eBay Auctions-The Field in the Lab," Cahiers de recherche 0950, CIRPEE. [Downloadable!]
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