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Theoretical and experimental analysis of auctions with negative externalities

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  • Hu, Youxin
  • Kagel, John
  • Xu, Xiaoshu
  • Ye, Lixin

Abstract

We investigate a private value auction in which a single “entrant” on winning imposes a negative externality on two “regular” bidders. In an English auction when all bidders are active, “regular” bidders free ride, exiting before price reaches their values. In a first-price sealed-bid auction incentives for free riding and aggressive bidding coexist, limiting free riding compared to the English auction. We find substantial, though incomplete, free riding in the clock auction. In first-price auctions, regular bidders bid more aggressively than the “entrant” and both bid higher than in auctions with no externality. Predictions regarding revenue, efficiency, and successful entry between the two auctions are satisfied.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 82 (2013)
Issue (Month): C ()
Pages: 269-291

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Handle: RePEc:eee:gamebe:v:82:y:2013:i:c:p:269-291

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Web page: http://www.elsevier.com/locate/inca/622836

Related research

Keywords: Auctions; Externality; Free riding; Aggressive bidding; Experiments;

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References

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  1. James Andreoni & Yeon-Koo Che & Jinwoo Kim, 2005. "Asymmetric Information about Rivals’ Types in Standard Auctions: An Experiment," Levine's Bibliography 666156000000000474, UCLA Department of Economics.
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  14. Hu, Youxin & Kagel, John & Xu, Xiaoshu & Ye, Lixin, 2013. "Theoretical and experimental analysis of auctions with negative externalities," Games and Economic Behavior, Elsevier, vol. 82(C), pages 269-291.
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Cited by:
  1. Hu, Youxin & Kagel, John & Xu, Xiaoshu & Ye, Lixin, 2012. "Theoretical and Experimental Analysis of Auctions with Negative Externalities," MPRA Paper 47060, University Library of Munich, Germany.

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