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Endogenous entry and self-selection in private value auctions: An experimental study

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  • Palfrey, Thomas R.
  • Pevnitskaya, Svetlana

Abstract

This paper presents the results of an experimental study of endogenous entry in first-price independent private value auctions. N potential bidders simultaneously decide whether to participate in an auction or receive a known outside option. In the second stage, entrants submit bids after learning their own private values and the number of entrants. An equilibrium model of heterogeneous risk averse bidders implies a self-selection effect, where bidding in the auction is lower with endogenous entry because only less risk averse bidders enter. This effect is confirmed by the experiment. We also observe excessive entry relative to the theoretical model.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 66 (2008)
Issue (Month): 3-4 (June)
Pages: 731-747

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Handle: RePEc:eee:jeborg:v:66:y:2008:i:3-4:p:731-747

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References

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  1. Jacob K. Goeree & Charles A. Holt & Thomas R. Palfrey, 2000. "Quantal Response Equilibrium and Overbidding in Private-Value Auctions," Virginia Economics Online Papers 345, University of Virginia, Department of Economics.
  2. James Cox & Sam Dinkin & James Swarthout, 2001. "Endogenous Entry and Exit in Common Value Auctions," Experimental Economics, Springer, vol. 4(2), pages 163-181, October.
  3. Thomas Palfrey, 2002. "Quantal Response Equilibrium and Overbidding in Private Value Auctions," Theory workshop papers 357966000000000089, UCLA Department of Economics.
  4. Fey, Mark & McKelvey, Richard D & Palfrey, Thomas R, 1996. "An Experimental Study of Constant-Sum Centipede Games," International Journal of Game Theory, Springer, vol. 25(3), pages 269-87.
  5. John Morgan & Ken Steiglitz & George Reis, 2003. "The Spite Motive and Equilibrium Behavior in Auctions," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 0(1), pages 5.
  6. Svetlana Pevnitskaya, 2003. "Endogenous Entry in First-Price Private Value Auctions: the Self-Selection Effect," Working Papers 03-03, Ohio State University, Department of Economics.
  7. Kirchkamp, Oliver & Poen, Eva & Reiß, J. Philipp, 2004. "Bidding with Outside Options," Sonderforschungsbereich 504 Publications 04-21, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  8. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  9. Cox, James C & Smith, Vernon L & Walker, James M, 1988. " Theory and Individual Behavior of First-Price Auctions," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 61-99, March.
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Citations

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Cited by:
  1. Ertaç, Seda & Hortaçsu, Ali & Roberts, James W., 2011. "Entry into auctions: An experimental analysis," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 168-178, March.
  2. Ivanova-Stenzel, Radosveta & Salmon, Timothy C., 2011. "The high/low divide: Self-selection by values in auction choice," Games and Economic Behavior, Elsevier, vol. 73(1), pages 200-214, September.
  3. Michalis Drouvelis & Julian C. Jamison, 2012. "Selecting public goods institutions: who likes to punish and reward?," Working Papers 12-5, Federal Reserve Bank of Boston.
  4. repec:feb:artefa:0052 is not listed on IDEAS
  5. David Reiley, 2004. "Experimental evidence on the endogenous entry of bidders in internet auctions," Framed Field Experiments 00196, The Field Experiments Website.
  6. Mark Isaac & Svetlana Pevnitskaya & Kurt S. Schnier, 2012. "Individual Behavior And Bidding Heterogeneity In Sealed Bid Auctions Where The Number Of Bidders Is Unknown," Economic Inquiry, Western Economic Association International, vol. 50(2), pages 516-533, 04.
  7. Sheng, Li, 2010. "Competing or cooperating to host mega events: A simple model," Economic Modelling, Elsevier, vol. 27(1), pages 375-379, January.
  8. Harrison, Glenn W. & Lau, Morten I. & Elisabet Rutström, E., 2009. "Risk attitudes, randomization to treatment, and self-selection into experiments," Journal of Economic Behavior & Organization, Elsevier, vol. 70(3), pages 498-507, June.
  9. R. Isaac & Svetlana Pevnitskaya & Timothy Salmon, 2010. "Do preferences for charitable giving help auctioneers?," Experimental Economics, Springer, vol. 13(1), pages 14-44, March.

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