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Estimating first-price auctions with an unknown number of bidders: A misclassification approach

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  • An, Yonghong
  • Hu, Yingyao
  • Shum, Matthew

Abstract

In this paper, we consider nonparametric identification and estimation of first-price auction models when N*, the number of potential bidders, is unknown to the researcher, but observed by bidders. Exploiting results from the recent econometric literature on models with misclassification error, we develop a nonparametric procedure for recovering the distribution of bids conditional on the unknown N*. Monte Carlo results illustrate that the procedure works well in practice. We present illustrative evidence from a dataset of procurement auctions, which shows that accounting for the unobservability of N* can lead to economically meaningful differences in the estimates of bidders' profit margins.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 157 (2010)
Issue (Month): 2 (August)
Pages: 328-341

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Handle: RePEc:eee:econom:v:157:y:2010:i:2:p:328-341

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Web page: http://www.elsevier.com/locate/jeconom

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Keywords: Auction models Nonparametric identification Misclassification;

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References

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Citations

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Cited by:
  1. Shneyerov, Art & Wong, Adam Chi Leung, 2008. "Identification in First-Price and Dutch Auctions when the Number of Potential Bidders is Unobservable," Microeconomics.ca working papers, Vancouver School of Economics artyom_shneyerov-2008-12, Vancouver School of Economics, revised 01 Oct 2008.
  2. Matthijs R Wildenbeest, 2009. "An Empirical Model of Search with Vertically Differentiated Products," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2009-01, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  3. Fang, Hanming & Tang, Xun, 2014. "Inference of bidders’ risk attitudes in ascending auctions with endogenous entry," Journal of Econometrics, Elsevier, Elsevier, vol. 180(2), pages 198-216.
  4. Philippe Jehiel & Laurent Lamy, 2011. "Absolute auctions and secret reserve prices: Why are they used?," Levine's Working Paper Archive 786969000000000316, David K. Levine.
  5. Susanne Schennach, 2012. "Measurement error in nonlinear models- a review," CeMMAP working papers, Centre for Microdata Methods and Practice, Institute for Fiscal Studies CWP41/12, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  6. Yonghong An & Michael R. Baye & Yingyao Hu & John Morgan & Matt Shum, 2010. "Horizontal Mergers of Online Firms: Structural Estimation and Competitive Effects," Economics Working Paper Archive 564, The Johns Hopkins University,Department of Economics.
  7. Laurent Lamy, 2008. "The econometrics of auctions with asymmetric anonymous bidders," PSE Working Papers halshs-00586039, HAL.
  8. Chen, Jong-Rong & Chen, Kong-Pin & Chou, Chien-Fu & Huang, Ching-I, 2006. "A dynamic model of auctions with buy-it-now: theory and evidence," MPRA Paper 38371, University Library of Munich, Germany, revised 24 Nov 2011.
  9. Yonghong An & Michael R Baye & Yingyao Hu & John Morgan & Matt Shum, 2010. "Identification and Estimation of Online Price Competition with an Unknown Number of Firms," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2010-17, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy, revised Nov 2012.

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