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The Affiliation Effect in First-Price Auctions

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  • Joris Pinkse
  • Guofu Tan
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    Abstract

    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. Copyright The Econometric Society 2005.

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    Bibliographic Info

    Article provided by Econometric Society in its journal Econometrica.

    Volume (Year): 73 (2005)
    Issue (Month): 1 (01)
    Pages: 263-277

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    Handle: RePEc:ecm:emetrp:v:73:y:2005:i:1:p:263-277

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    Cited by:
    1. Kalyn T. Coatney & Sherrill L. Shaffer & Dale J. Menkhaus, 2011. "Auction Prices, Market Share, and a Common Agent," CAMA Working Papers 2011-24, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    2. Ali Hortacsu & Jakub Kastl, 2008. "Testing for Common Values in Canadian Treasury Bill Auctions," Discussion Papers 07-053, Stanford Institute for Economic Policy Research.
    3. Loyola, Gino, 2012. "Optimal and efficient takeover contests with toeholds," Journal of Financial Intermediation, Elsevier, vol. 21(2), pages 203-216.
    4. Hennessy, David A., 2006. "Multi-output firm under price uncertainty," Journal of Economics and Business, Elsevier, vol. 58(3), pages 181-201.
    5. Jingfeng Lu & Isabelle Perrigne, 2008. "Estimating risk aversion from ascending and sealed-bid auctions: the case of timber auction data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(7), pages 871-896.
    6. Tukiainen, Janne, 2008. "Testing for common costs in the City of Helsinki bus transit auctions," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1308-1322, November.
    7. Jonathan B. Hill & Artyom Shneyerov, 2009. "Are There Common Values in BC Timber Sales? A Tail-Index Nonparametric Test," Working Papers 09003, Concordia University, Department of Economics.
    8. Marquez, Robert & Singh, Rajdeep, 2013. "The economics of club bidding and value creation," Journal of Financial Economics, Elsevier, vol. 108(2), pages 493-505.
    9. Hill, Jonathan B. & Shneyerov, Artyom, 2013. "Are there common values in first-price auctions? A tail-index nonparametric test," Journal of Econometrics, Elsevier, vol. 174(2), pages 144-164.
    10. Sumit Joshi & Poorvi Vora, 2013. "Weak and strong multimarket bidding rings," Economic Theory, Springer, vol. 53(3), pages 657-696, August.
    11. Bruno Larue & Mohamed Jeddy & S├ębastien Pouliot, 2013. "On the Number of Bidders and Auction Performance: when More Means Less," Cahiers de recherche CREATE 2013-4, CREATE.
    12. Menicucci, Domenico, 2009. "Harmful competition in all-pay auctions," Mathematical Social Sciences, Elsevier, vol. 58(1), pages 110-120, July.
    13. Jun, Sung Jae & Pinkse, Joris & Wan, Yuanyuan, 2010. "A consistent nonparametric test of affiliation in auction models," Journal of Econometrics, Elsevier, vol. 159(1), pages 46-54, November.

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