Vertically Differentiated Simultaneous Vickrey Auctions: Theory and Experimental Evidence
AbstractWe study settings where a number of sellers simultaneously offer vertically differentiated Vickrey auctions for imperfect substitute goods to unit-demand buyers. Vertical differentiation can arise from differences in item quality, item value certainty, seller reliability, or a combination of these factors. We characterize the form of the bidding equilibria and derive expressions for the corresponding allocative efficiency and expected seller revenue. When bidders are restricted to submit at most one bid, our theory predicts the existence of a unique Bayes-Nash equilibrium that resembles a form of probabilistic "mating-of-likes." Allowing unit-demand bidders to place an arbitrary number of bids induces complex strategy profiles where bidders place positive bids in all available auctions. Higher bidder types tend to follow more targeted strategies, focusing their "serious" bids on fewer and, generally, higher quality auctions. The nature of the bidding equilibria introduces allocative inefficiencies that arise from the lack of coordination in auction selection among bidders. We test our theoretical propositions in a controlled laboratory experiment while also utilizing a domain specific risk score to help assess how the bidders' risk type affects their bidding behavior. In support of our theory we find evidence of a probabilistic assortative matching between bidder and auction types. We also find that low risk type bidders tend to crowd on the highest auction and will pay a premium for the certainty it offers, whereas high risk type bidders fail to appropriately adjust for risk associated with the lowest auction, leading to overbidding. These lead to an interesting focal anomaly whereby bids are concentrated on the highest and lowest auctions, bypassing intermediate auctions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 56 (2010)
Issue (Month): 7 (July)
competing auctions; simultaneous auctions; vertical differentiation; reputation; game theory; laboratory experiment;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Kevin Yili Hong & Alex Chong Wang & Paul A. Pavlou, 2013. "How does Bid Visibility Matter in Buyer-Determined Auctions? Comparing Open and Sealed Bid Auctions in Online Labor Markets," Working Papers 13-05, NET Institute.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.