Advanced Search
MyIDEAS: Login to save this paper or follow this series

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

Contents:

Author Info

  • Tibor Neugebauer

    ()
    (Luxembourg School of Finance, University of Luxembourg)

Registered author(s):

    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.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.lsf.lu/eng/content/download/494/2684/file/07-17.pdf
    Our checks indicate that this address may not be valid because: 404 Not Found (http://www.lsf.lu/eng/content/download/494/2684/file/07-17.pdf [302 Found]--> http://www.uni.lu/luxembourg_school_of_finance/eng/content/download/494/2684/file/07-17.pdf [301 Moved Permanently]--> http://wwwfr.uni.lu/luxembourg_school_of_finance/eng/content/download/494/2684/file/07-17.pdf). If this is indeed the case, please notify (Martine Zenner)
    Download Restriction: no

    Bibliographic Info

    Paper provided by Luxembourg School of Finance, University of Luxembourg in its series LSF Research Working Paper Series with number 07-17.

    as in new window
    Length:
    Date of creation: 2007
    Date of revision:
    Handle: RePEc:crf:wpaper:07-17

    Contact details of provider:
    Postal: Bâtiment K2, 4, rue Albert Borschette, L-1246 Luxembourg-Kirchberg
    Phone: +352 46 66 44 6335
    Fax: +352 46 66 44 6811
    Email:
    Web page: http://wwwen.uni.lu/luxembourg_school_of_finance
    More information through EDIRC

    Related research

    Keywords: First-price auctions; experiment.;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Tibor Neugebauer & Javier Perote, 2008. "Bidding ‘as if’ risk neutral in experimental first price auctions without information feedback," Experimental Economics, Springer, vol. 11(2), pages 190-202, June.
    2. Emel Filiz-Ozbay & Erkut Y. Ozbay, 2007. "Auctions with Anticipated Regret: Theory and Experiment," American Economic Review, American Economic Association, vol. 97(4), pages 1407-1418, September.
    3. Srabana Gupta, 2002. "Competition and collusion in a government procurement auction market," Atlantic Economic Journal, International Atlantic Economic Society, vol. 30(1), pages 13-25, March.
    4. Paul Pezanis-Christou & Abdolkarim Sadrieh, 2003. "Elicited bid functions in (a)symmetric first-price auctions," Working Papers 85, Barcelona Graduate School of Economics.
    5. Tibor Neugebauer & Reinhard Selten, 2002. "Individual Behavior of First-Price Sealed-Bid Auctions: The Importance of Information Feedback in Experimental Markets," Bonn Econ Discussion Papers bgse3_2003, University of Bonn, Germany.
    6. Chen, Kay-Yut & Plott, Charles R., 1998. "Nonlinear Behavior in Sealed Bid First Price Auctions," Games and Economic Behavior, Elsevier, vol. 25(1), pages 34-78, October.
    7. Axel Ockenfels & Reinhard Selten, 2004. "Impulse Balance Equilibrium and Feedback in First Price Auctions," Working Paper Series in Economics 7, University of Cologne, Department of Economics.
    8. repec:wop:humbsf:1999-70 is not listed on IDEAS
    9. Tibor Neugebauer & Paul Pezanis-Christou, 2003. "Bidding at Sequential First-Price Auctions with(out) Supply Uncertainty: a Laboratory Analysis," Working Papers 24, Barcelona Graduate School of Economics.
    10. Abbink, Klaus & Abdolkarim Sadrieh, 1995. "RatImage - research Assistance Toolbox for Computer-Aided Human Behavior Experiments," Discussion Paper Serie B 325, University of Bonn, Germany.
    11. Thomas Palfrey, 2002. "Quantal Response Equilibrium and Overbidding in Private Value Auctions," Theory workshop papers 357966000000000089, UCLA Department of Economics.
    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. Dufwenberg, Martin & Gneezy, Uri, 1999. "Price Competition and Market Concentration: An experimental Study," Research Papers in Economics 1999:4, Stockholm University, Department of Economics.
    14. Goeree, Jacob K. & Holt, Charles A. & Palfrey, Thomas R., 2002. "Quantal Response Equilibrium and Overbidding in Private-Value Auctions," Journal of Economic Theory, Elsevier, vol. 104(1), pages 247-272, May.
    15. Steffen Huck & Hans-Theo Normann & Joerg Oechssler, 1998. "Does information about competitors' actions increase or decrease competition in experimental oligopoly markets?," Industrial Organization 9803004, EconWPA.
    16. Vincent P. Crawford & Nagore Iriberri, 2007. "Level-k Auctions: Can a Nonequilibrium Model of Strategic Thinking Explain the Winner's Curse and Overbidding in Private-Value Auctions?," Econometrica, Econometric Society, vol. 75(6), pages 1721-1770, November.
    17. Werner G¸th & Radosveta Ivanova-Stenzel & Manfred K–nigstein & Martin Strobel, 2003. "Learning to bid - an experimental study of bid function adjustments in auctions and fair division games," Economic Journal, Royal Economic Society, vol. 113(487), pages 477-494, 04.
    18. Jordi Brandts & Pablo Guill?, 2004. "Collusion and Fights in an Experiment with Price-Setting Firms and Production in Advance," UFAE and IAE Working Papers 618.04, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    19. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
    20. Richard Engelbrecht-Wiggans & Elena Katok, 2007. "Regret in auctions: theory and evidence," Economic Theory, Springer, vol. 33(1), pages 81-101, October.
    21. Steffen Huck & Hans-Theo Normann & Jörg Oechssler, 2001. "Two are Few and Four are Many: Number Effects in Experimental Oligopolies," Bonn Econ Discussion Papers bgse12_2001, University of Bonn, Germany.
    22. Abbink, Klaus & Brandts, Jordi, 2008. "24. Pricing in Bertrand competition with increasing marginal costs," Games and Economic Behavior, Elsevier, vol. 63(1), pages 1-31, May.
    23. Hansen, Robert G, 1985. "Empirical Testing of Auction Theory," American Economic Review, American Economic Association, vol. 75(2), pages 156-59, May.
    24. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
    25. Brannman, Lance Eric, 1996. "Potential Competition and Possible Collusion in Forest Service Timber Auctions," Economic Inquiry, Western Economic Association International, vol. 34(4), pages 730-45, October.
    26. 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.
    27. 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.
    28. 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.
    29. Dufwenberg, Martin & Gneezy, Uri, 2002. "Information disclosure in auctions: an experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 48(4), pages 431-444, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Tibor Neugebauer & Sascha Füllbrunn, 2008. "Anonymity deters collusion in hard-close auctions: Experimental Evidence," LSF Research Working Paper Series 08-09, Luxembourg School of Finance, University of Luxembourg.
    2. Noe, Thomas H. & Rebello, Michael & Wang, Jun, 2012. "Learning to bid: The design of auctions under uncertainty and adaptation," Games and Economic Behavior, Elsevier, vol. 74(2), pages 620-636.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:crf:wpaper:07-17. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Martine Zenner).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.