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The Size of the Affiliation Effect

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  • Hae Won Byun

Abstract

The objective of this paper is to investigate whether the affiliation effect is of only marginal importance or it is of the same order of magnitude as the winner's curse and competition effects. This paper is an application of Pinkse and Tan in which they show that bids can be decreasing in the number of bidders in private value auctions provided that the bidders' private values are affiliated. They argue that the affiliation effect is also present in common value auctions. If the affiliation effect is substantial then a regression of bids on the number of bidders will not help in distinguishing between the common and private value paradigms. We use the Offshore Continental Shelf auction data-set to estimate these effects and find that the affiliation effect is smaller than the other two effects in terms of size. Therefore, at least in this application it appears unlikely that the affiliation effect would often offset the competition effect.

Suggested Citation

  • Hae Won Byun, 2015. "The Size of the Affiliation Effect," Global Economic Review, Taylor & Francis Journals, vol. 44(2), pages 202-218, June.
    • Handle: RePEc:taf:glecrv:v:44:y:2015:i:2:p:202-218
    DOI: 10.1080/1226508X.2015.1033731
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