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Impact of Valuation Ranking Information on Bidding in First-Price Auctions: A Laboratory Study

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Author Info
Alexander Elbittar () (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))

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Abstract

Landsberger, et al. (2001) have identified optimal bidder behavior in first-price private-value auctions when the ranking of valuations is common knowledge, and derived comparative-statics predictions regarding the auctioneer's expected revenue and the efficiency of the allocation. The experiment reported here tests the behavioral components of these comparative-statics predictions using the dual-market bidding procedure, which permits very powerful tests. The results support the predictions that buyers are inclined to bid more aggressively when they learn they have the low value. Contrary to theory, buyers are inclined to bid less when they learn they have the high value. Once information is revealed, bidders tend to move toward better responses, exploiting new economic opportunities. Consistent with theory, the overall proportion of efficient allocations is lower than in the first-price auction before information is revealed. But as a result of high-value bidders decreasing their bids, the expected revenue does not increase on a regular basis, contrary to the theory's predictions.

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File URL: http://ftp.itam.mx/pub/academico/inves/elbittar/03-04.pdf
File Format: application/pdf
File Function: First version, 2003
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Publisher Info
Paper provided by Centro de Investigacion Economica, ITAM in its series Working Papers with number 0304.

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Length: 23 pages
Date of creation: Jan 2003
Date of revision:
Handle: RePEc:cie:wpaper:0304

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Related research
Keywords: Asymmetric auctions; laboratory experiments; affiliation and economics of information;

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Find related papers by JEL classification:
C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

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  1. W. Güth & R. Ivanova-Stenzel & E. Wolfstetter, . "Bidding Behavior in Asymmetric Auctions: An Experimental Study," Sonderforschungsbereich 373 2001-15, Humboldt Universitaet Berlin.
    Other versions:
  2. Plum, M, 1992. "Characterization and Computation of Nash-Equilibria for Auctions with Incomplete Information," International Journal of Game Theory, Springer, vol. 20(4), pages 393-418.
  3. Marshall Robert C. & Meurer Michael J. & Richard Jean-Francois & Stromquist Walter, 1994. "Numerical Analysis of Asymmetric First Price Auctions," Games and Economic Behavior, Elsevier, vol. 7(2), pages 193-220, September. [Downloadable!] (restricted)
  4. Paul Pezanis-Christou, 2002. "On the impact of low-balling: Experimental results in asymmetric auctions," International Journal of Game Theory, Springer, vol. 31(1), pages 69-89. [Downloadable!] (restricted)
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  5. Kagel, John H & Levin, Dan, 1991. "The Winner's Curse and Public Information in Common Value Auctions: Reply," American Economic Review, American Economic Association, vol. 81(1), pages 362-69, March. [Downloadable!] (restricted)
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  6. Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Blackwell Publishing, vol. 67(3), pages 413-38, July.
  7. Klemperer, P., 1999. "Auction Theory: a Guide to the Literature," Economics Papers 1999-w12, Economics Group, Nuffield College, University of Oxford.
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  8. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-92, June. [Downloadable!] (restricted)
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  9. Elmar Wolfstetter & Michael Landsberger & Jakob Rubinstei & Shmuel Zamir, 1997. "First-Price Auctions when the Ranking of Valuations," Microeconomics 9701004, EconWPA. [Downloadable!]
  10. Coppinger, Vicki M & Smith, Vernon L & Titus, Jon A, 1980. "Incentives and Behavior in English, Dutch and Sealed-Bid Auctions," Economic Inquiry, Oxford University Press, vol. 18(1), pages 1-22, January.
  11. Robert Slonim & Alvin E. Roth, 1998. "Learning in High Stakes Ultimatum Games: An Experiment in the Slovak Republic," Econometrica, Econometric Society, vol. 66(3), pages 569-596, May.
  12. Cox, James C & Smith, Vernon L & Walker, James M, 1988. " Theory and Individual Behavior of First-Price Auctions," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 61-99, March.
  13. 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. [Downloadable!] (restricted)
  14. Wolfstetter, Elmar, 1996. " Auctions: An Introduction," Journal of Economic Surveys, Blackwell Publishing, vol. 10(4), pages 367-420, December.
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  15. Professor Paul Klemperer, 2000. "What Really Matters in Auction Design," Microeconomics 0004008, EconWPA. [Downloadable!]
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  16. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September. [Downloadable!] (restricted)
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