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The Competitive Effect in Bonus Bidding: New Evidence

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  • Otis W. Gilley
  • Gordon V. Karels
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    Abstract

    One of the major unsettled questions in the study of competitive bidding concerns the impact of additional competition in auctions on the optimal bid levels of competing firms. Numerous theoretical and simulation studies suggest an inverse relationship between the expected number of competitors and the bid level of a particular firm in sealed bid auctions involving objects of uncertain value. The few empirical studies that have been done contradict this assertion. In this article, we address this issue by pointing out a serious statistical defect in previous empirical work and by reestimating a bid level equation by using a more appropriate technique. New evidence is provided which reconciles the differences between previous empirical results and the major predictions of the widely accepted bidding theory models. The new results presented here support the conclusions of the theoretical studies.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal Bell Journal of Economics.

    Volume (Year): 12 (1981)
    Issue (Month): 2 (Autumn)
    Pages: 637-648

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    Handle: RePEc:rje:bellje:v:12:y:1981:i:autumn:p:637-648

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    Cited by:
    1. Hill, Jonathan B. & Shneyerov, Artyom, 2013. "Are there common values in first-price auctions? A tail-index nonparametric test," Journal of Econometrics, Elsevier, vol. 174(2), pages 144-164.
    2. Dicke, Hugo & Foders, Federico, 1985. "Die Bedeutung internationaler Organisationen für die Nutzung von Ressourcen im Gemeineigentum: das Beispiel des Fischbestandes der Meere," Kiel Working Papers 222, Kiel Institute for the World Economy.

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