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Gambling by auctions

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Author Info

  • Raviv, Yaron
  • Virag, Gabor

Abstract

We provide theoretical and empirical analysis of a selling mechanism used by an Internet web-site that combines important features of auctions and gambling. This is the first analysis of such a selling mechanism, which provides insights into how the two kinds of behavior might be related in real life. The winner of the object is the bidder with the highest bid not submitted by any other bidder. In the equilibrium of our game theoretical model, each bid made with positive probability yields the same probability of winning. Bidders are more likely to submit higher bids, and the bid distribution does not depend on the value of the object or the highest bid allowed if one controls for the number of bidders. Most of these key theoretical predictions are confirmed by the data.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 27 (2009)
Issue (Month): 3 (May)
Pages: 369-378

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Handle: RePEc:eee:indorg:v:27:y:2009:i:3:p:369-378

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Web page: http://www.elsevier.com/locate/inca/505551

Related research

Keywords: Unique bid auctions Multinomial distribution Lotteries;

References

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  1. Timothy Besley & Stephen Coate & Glenn Loury, 1992. "The Economics of Rotating Savings and Credit Associations," Boston University - Institute for Economic Development, Boston University, Institute for Economic Development 24, Boston University, Institute for Economic Development.
  2. Melissa Schettini Kearney, 2002. "State Lotteries and Consumer Behavior," NBER Working Papers 9330, National Bureau of Economic Research, Inc.
  3. Jacob K. Goeree & Emiel Maasland & Sander Onderstal & John L. Turner, 2005. "How (Not) to Raise Money," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 113(4), pages 897-926, August.
  4. Robert Ostling & Joseph T Wang & Eileen Chou & Colin F Camerer, 2007. "Field and Lab Convergence in Poisson LUPI games," Levine's Bibliography 122247000000001530, UCLA Department of Economics.
  5. Thomas A. Garrett & Russell S. Sobel, 2004. "State Lottery Revenue: The Importance of Game Characteristics," Public Finance Review, , vol. 32(3), pages 313-330, May.
  6. Clotfelter, Charles T & Cook, Philip J, 1990. "On the Economics of State Lotteries," Journal of Economic Perspectives, American Economic Association, vol. 4(4), pages 105-19, Fall.
  7. Rapoport, Amnon & Otsubo, Hironori & Kim, Bora & Stein, William E., 2007. "Unique bid auctions: Equilibrium solutions and experimental evidence," MPRA Paper 4185, University Library of Munich, Germany, revised 17 Jul 2007.
  8. Farrell, Lisa, et al, 2000. "The Demand for Lotto: The Role of Conscious Selection," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 18(2), pages 228-41, April.
  9. Jürgen Eichberger & Dmitri Vinogradov, 2008. "Least Unmatched Price Auctions: A First Approach," Working Papers 0471, University of Heidelberg, Department of Economics, revised Jul 2008.
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Citations

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Cited by:
  1. Rapoport, Amnon & Otsubo, Hironori & Kim, Bora & Stein, William E., 2007. "Unique bid auctions: Equilibrium solutions and experimental evidence," MPRA Paper 4185, University Library of Munich, Germany, revised 17 Jul 2007.
  2. Andrea Gallice, 2008. "Lowest Unique Bid Auctions over the Internet: Ability, Lottery or Scam?," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 0608, Department of Economic Policy, Finance and Development (DEPFID), University of Siena.
  3. Harold Houba & Dinard Laan & Dirk Veldhuizen, 2011. "Endogenous entry in lowest-unique sealed-bid auctions," Theory and Decision, Springer, vol. 71(2), pages 269-295, August.
  4. Marco Scarsini & Eilon Solan & Nicolas Vieille, 2010. "Lowest Unique Bid Auctions," Papers 1007.4264, arXiv.org.
  5. Robert �stling & Joseph Tao-yi Wang & Eileen Y. Chou & Colin F. Camerer, 2011. "Testing Game Theory in the Field: Swedish LUPI Lottery Games," American Economic Journal: Microeconomics, American Economic Association, vol. 3(3), pages 1-33, August.
  6. Peitz, Martin & Waldfogel, Joel, 2012. "The Oxford Handbook of the Digital Economy," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195397840, October.
  7. Toomas Hinnosaar, 2013. "Penny Auctions are Unpredictable," Carlo Alberto Notebooks 305, Collegio Carlo Alberto.
  8. Harold Houba & Dinard van der Laan & Dirk Veldhuizen, 2008. "The Unique-lowest Sealed-bid Auction," Tinbergen Institute Discussion Papers 08-049/1, Tinbergen Institute.

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