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Efficiency in Second-Price Auctions: A New Look at Old Data

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  • Garratt, Rod
  • Wooders, John

Abstract

The experimental economics literature on second-price sealed-bid private value auctions has established that subjects typically bid more than their value, despite the fact that value bidding is a dominant strategy in such auctions. Moreover, the laboratory evidence shows that subjects do not learn to bid their values as they gain more experience. In the present paper, we re-examine the second-price auction data from Kagel and Levin’s (1993) classic paper. We find that auction efficiency is rising over time, even though the frequency of overbidding is unchanged. We argue that the rise in efficiency is due to a decline in the variability of overbidding. This is consistent with subjects learning to bid more like each other.

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Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt5d86p46d.

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Date of creation: 09 Feb 2004
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Handle: RePEc:cdl:ucsbec:qt5d86p46d

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  1. Rodney Garratt & John Wooders, 2010. "Efficiency in Second-Price Auctions: A New Look at Old Data," Review of Industrial Organization, Springer, vol. 37(1), pages 43-50, August.
  2. Mehta, Judith & Starmer, Chris & Sugden, Robert, 1994. "The Nature of Salience: An Experimental Investigation of Pure Coordination Games," American Economic Review, American Economic Association, vol. 84(3), pages 658-73, June.
  3. Kagel, J.H. & Levin, D., 1988. "Independent Private Value Auctions: Bidder Behavior In First, Second And Third-Price Auctions With Varying Numbers Of Bidders," Papers 13, Houston - Department of Economics.
  4. Bergstrom, Carl T. & Bergstrom, Ted C & Garratt, Rod, 2009. "Ideal Bootstrapping and Exact Recombination: Applications to Auction Experiments," University of California at Santa Barbara, Economics Working Paper Series qt4xb7454q, Department of Economics, UC Santa Barbara.
  5. Ronald Harstad, 2000. "Dominant Strategy Adoption and Bidders' Experience with Pricing Rules," Experimental Economics, Springer, vol. 3(3), pages 261-280, December.
  6. Mitzkewitz, Michael & Nagel, Rosemarie, 1993. "Experimental Results on Ultimatum Games with Incomplete Information," International Journal of Game Theory, Springer, vol. 22(2), pages 171-98.
  7. Kagel, John H & Harstad, Ronald M & Levin, Dan, 1987. "Information Impact and Allocation Rules in Auctions with Affiliated Private Values: A Laboratory Study," Econometrica, Econometric Society, vol. 55(6), pages 1275-1304, November.
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Cited by:
  1. Kirchkamp, Oliver & Reiss, J. Philipp & Sadrieh, Abdolkarim, 2008. "A pure variation of risk in private-value auctions," Research Memorandum 050, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  2. Garratt, Rod & Wooders, John, 2004. "Efficiency in Second-Price Auctions: A New Look at Old Data," University of California at Santa Barbara, Economics Working Paper Series qt5d86p46d, Department of Economics, UC Santa Barbara.
  3. Bramsen, Jens-Martin, 2008. "Learning to bid, but not to quit – Experience and Internet auctions," MPRA Paper 14815, University Library of Munich, Germany.

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