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Bid and price effects of increased competition in the first-price auction: experimental evidence

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Author Info
Tibor Neugebauer () (CREFI-LSF, University of Luxembourg)

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Abstract

The paper reports experimental data on the behavior in the first-price sealed-bid auction for a varying number of market participants when values and bids are private information. In line with the theory, the data show that the price and the bid-value ratio increase with the number of participants. Indeed the increase of bids in market size is not as steep as predicted by the risk neutral Nash equilibrium. Consequently, bids are more likely to be above [below] the equilibrium for small [big] market size and at equilibrium for some market size. The relationship between market size and average bids or prices is captured by an increasing bidding function which allows an estimate for greater market sizes. The behavioral pattern of prices is slightly different; the observed price increase due to an increase in market size does quite closely match the predicted one. It is argued that the heterogeneity of bidding behavior leads to higher prices than would be expected under symmetric bidding.

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Publisher Info
Paper provided by CREFI-LSF, University of Luxembourg in its series Working Papers of CREFI-LSF (Centre of Research in Finance - Luxembourg School of Finance) with number 07-17.

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Date of creation: 2007
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Handle: RePEc:crf:wpaper:07-17

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Related research
Keywords: First-price auctions; experiment.;

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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

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    Other versions:
  2. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 2000. "Does information about competitors' actions increase or decrease competition in experimental oligopoly markets?," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 39-57, January. [Downloadable!] (restricted)
    Other versions:
  3. Mark Van Boening & Stephen Rassenti & Vernon Smith, 1998. "Numerical Computation of Equilibrium Bid Functions in a First-Price Auction with Heterogeneous Risk Attitudes," Experimental Economics, Springer, vol. 1(2), pages 147-159, September. [Downloadable!] (restricted)
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    Other versions:
  5. 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.
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  14. Abbink, Klaus & Abdolkarim Sadrieh, 1995. "RatImage - research Assistance Toolbox for Computer-Aided Human Behavior Experiments," Discussion Paper Serie B 325, University of Bonn, Germany.
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  21. Selten, Reinhard & Joachim Buchta, 1994. "Experimental Sealed Bid First Price Auctions with Directly Observed Bid Functions," Discussion Paper Serie B 270, University of Bonn, Germany.
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