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Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions

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  • Susan Athey

Abstract

We study entry and bidding patterns in sealed bid and open auctions with heterogeneous bidders. Using data from U.S. Forest Service timber auctions, we document a set of systematic effects of auction format: sealed bid auctions attract more small bidders, shift the allocation towards these bidders, and can also generate higher revenue. We propose a model, which extends the theory of private value auctions with heterogeneous bidders to capture participation decisions, that can account for these qualitative effects of auction format. We then calibrate the model using parameters estimated from the data and show that the model can explain the quantitative effects as well. Finally, we use the model to provide an assessment of bidder competitiveness, which has important consequences for auction choice.

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Bibliographic Info

Paper provided by UCLA Department of Economics in its series Theory workshop papers with number 658612000000000098.

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Date of creation: 14 Feb 2005
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Handle: RePEc:cla:uclatw:658612000000000098

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  1. Matt Shum & Phil Haile & Han Hong, 2003. "Nonparametric Tests for Common Values in First-Price Auctions," Economics Working Paper Archive 501, The Johns Hopkins University,Department of Economics.
  2. Harry J. Paarsch & Bjarne Brendstrup, 2004. "Nonparametric Identification and Estimation of Multi-Unit, Sequential, Oral, Ascending-Price Auctions with Asymmetric Bidders," Econometric Society 2004 North American Winter Meetings 149, Econometric Society.
  3. Marshall, R.C. & Richard J.F., 1995. "Bider Collusion at Forest Service Timber Sales," Papers 7-95-3, Pennsylvania State - Department of Economics.
  4. Leandro Arozamena & Estelle Cantillon, 2004. "Investment Incentives in Procurement Auctions," Review of Economic Studies, Wiley Blackwell, vol. 71(1), pages 1-18, 01.
  5. Susan Athey & Jonathan Levin, 1999. "Information and Competition in U.S. Forest Service Timber Auctions," NBER Working Papers 7185, National Bureau of Economic Research, Inc.
  6. Steven A. Matthews, 1985. "Comparing Auctions for Risk Averse Buyers: A Buyer's Pointof View," Discussion Papers 664R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Athey,S. & Haile,P.A., 2000. "Identification of standard auction models," Working papers 13, Wisconsin Madison - Social Systems.
  8. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation for Research in Economics, Yale University.
  9. Philip A. Haile & Han Hong & Matthew Shum, 2003. "Nonparametric Tests for Common Values in First-Price Sealed-Bid Auctions," Cowles Foundation Discussion Papers 1445, Cowles Foundation for Research in Economics, Yale University.
  10. Haile,P.A. & Tamer,E.T., 2000. "Inference with an incomplete model of English auctions," Working papers 18, Wisconsin Madison - Social Systems.
  11. Bresnahan, Timothy F & Reiss, Peter C, 1990. "Entry in Monopoly Markets," Review of Economic Studies, Wiley Blackwell, vol. 57(4), pages 531-53, October.
  12. Maskin, Eric & Riley, John, 2000. "Asymmetric Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 413-38, July.
  13. Patrick Bajari & Lixin Ye, 2003. "Deciding Between Competition and Collusion," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 971-989, November.
  14. Porter, Robert H & Zona, J Douglas, 1993. "Detection of Bid Rigging in Procurement Auctions," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 518-38, June.
  15. Mireia Jofre-Bonet & Martin Pesendorfer, 2001. "Estimation of a Dynamic Auction Game," NBER Working Papers 8626, National Bureau of Economic Research, Inc.
  16. Guerre, E. & Perrigne, I. & Vuong, Q., 1995. "Nonparametric Estimation of First-Price Auctions," Papers 9504, Southern California - Department of Economics.
  17. Philip A. Haile, 2001. "Auctions with Resale Markets: An Application to U.S. Forest Service Timber Sales," American Economic Review, American Economic Association, vol. 91(3), pages 399-427, June.
  18. Pesendorfer, Martin, 2000. "A Study of Collusion in First-Price Auctions," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 381-411, July.
  19. Alberto Abadie & Guido W. Imbens, 2006. "Large Sample Properties of Matching Estimators for Average Treatment Effects," Econometrica, Econometric Society, vol. 74(1), pages 235-267, 01.
  20. Hansen, Robert G, 1986. "Sealed-Bid versus Open Auctions: The Evidence," Economic Inquiry, Western Economic Association International, vol. 24(1), pages 125-42, January.
  21. Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, vol. 60(4), pages 889-917, July.
  22. Matthew Shum, 2000. "Nonparametric Tests for Common Values," Econometric Society World Congress 2000 Contributed Papers 1598, Econometric Society.
  23. Robert H. Porter & J. Douglas Zona, 1997. "Ohio School Milk Markets: An Analysis of Bidding," NBER Working Papers 6037, National Bureau of Economic Research, Inc.
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