Lowest Unique Bid Auctions with Signals
AbstractA lowest unique bid auction allocates a good to the agent who submits the lowest bid that is not matched by any other bid. This peculiar auction format is becoming increasingly popular over the Internet. We show that when all the bidders are rational such a selling mechanism can lead to positive profits only if there is a large mismatch between the auctioneer's and the bidders' valuation. On the contrary, the auction becomes highly lucrative if at least some bidders are myopic. In this second case, we analyze the key role played by the existence of some private signals that the seller sends to the bidders about the status of their bids. Data about actual auctions confirm the profitability of the mechanism and the limited rationality of the bidders.
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Bibliographic InfoPaper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 112.
Length: 29 pages
Date of creation: May 2009
Date of revision: Sep 2009
Lowest unique bid auctions; Signals; Bounded rationality.;
Find related papers by JEL classification:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-06-10 (All new papers)
- NEP-CTA-2009-06-10 (Contract Theory & Applications)
- NEP-GTH-2009-06-10 (Game Theory)
- NEP-UPT-2009-06-10 (Utility Models & Prospect Theory)
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- Andrea Gallice, 2012. "Price Reveal Auctions," Working papers 015, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
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- Unique bid auction in Wikipedia (English)
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