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Endogenous Asymmetry and Entry in Sequential Multi-Unit Auctions: Identification and Estimation

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  • Sudip Gupta
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    Abstract

    This paper analyzes bidding behavior in a multi period multiple unit auction. While bidders are ex ante symmetric, the first period outcome translates the second period game to a game between asymmetric bidders. The first period outcome determines who will be a strong or a weak bidder in the second period. The possibility of future asymmetry thus affects the bidding behavior in the current symmetric environment. This leads to "excessive entry" and "overbidding' in the first period. We characterize the equilibrium in terms of the observed bid distribution and entry behavior. Using this characterization we establish the nonparametric identification of bidders' privately observed signals from bid data. We suggest a three step procdure to estimate the dynamic mixed discrete-continuous choice model. We estimate our model and report the results. Specifically, we found that the federal government is only recovering 25% of the `strong' buyers' willingness to pay.In the wildcat auctions, we found that the bidders are willing to pay 10 % more to take possible future informational advantage

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    Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 566.

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    Date of creation: 11 Aug 2004
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    Handle: RePEc:ecm:nasm04:566

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    Keywords: Dynamic Auctions; Asymmetric Information; Endogenous Paricipation; Dynamic Discrete/ Continuous Choice;

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    1. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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    3. Mireia Jofre-Bonet & Martin Pesendorfer, 2003. "Estimation of a Dynamic Auction Game," Econometrica, Econometric Society, Econometric Society, vol. 71(5), pages 1443-1489, 09.
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    8. Nicola Persico, 1997. "Information Acquisition in Auctions," UCLA Economics Working Papers, UCLA Department of Economics 762, UCLA Department of Economics.
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    13. Philip A. Haile & Han Hong & Matthew Shum, 2003. "Nonparametric Tests for Common Values in First-Price Sealed-Bid Auctions," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1445, Cowles Foundation for Research in Economics, Yale University.
    14. Krishna, K., 1990. "Auctions with Endogenous Valuations: The Persistence of Monopoly Revisited," Papers, Stockholm - International Economic Studies 472, Stockholm - International Economic Studies.
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    16. Lebrun, Bernard, 1999. "First Price Auctions in the Asymmetric N Bidder Case," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 125-42, February.
    17. Porter, Robert H, 1995. "The Role of Information in U.S. Offshore Oil and Gas Lease Auctions," Econometrica, Econometric Society, Econometric Society, vol. 63(1), pages 1-27, January.
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    20. Quang Vuong & Sandra Campo & Isabelle Perrigne, 2003. "Asymmetry in first-price auctions with affiliated private values," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 18(2), pages 179-207.
    21. Maskin, Eric & Riley, John, 2000. "Equilibrium in Sealed High Bid Auctions," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 67(3), pages 439-54, July.
    22. Hendricks, Kenneth & Porter, Robert H, 1988. "An Empirical Study of an Auction with Asymmetric Information," American Economic Review, American Economic Association, American Economic Association, vol. 78(5), pages 865-83, December.
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