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The Chopstick Auction: A Study of the Exposure Problem in Multi-Unit Auctions

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Author Info
Sander Onderstal (Bureau for Economic Policy Analysis, CPB Netherlands)
Florian Englmaier (Economics Department, University of Munich)
Pablo Guillen (Autonoma Barcelona, CSIC)
Loreto Llorente (Departamento de Economía, Universidad Pública de Navarra)
Rupert Sausgruber (Department of Public Economics, University of Innsbruck)

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Abstract

Multi-unit auctions are sometimes plagued by the so-called exposure problem. In this paper, we analyze a simple game called the ‘chopstick auction’ in which bidders are confronted with the exposure problem. We analyze the chopstick auction with incomplete information both in theory and in a laboratory experiment. In theory, the chopstick auction has an efficient equilibrium and is revenue equivalent with the second-price sealed-bid auction in which the exposure problem is not present. In the experiment, however, we find that the chopstick auction is slightly less efficient but yields far more revenue than the second-price sealed-bid auction.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2004.10.

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Date of creation: Jan 2004
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Handle: RePEc:fem:femwpa:2004.10

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Related research
Keywords: Chopstick auction; Exposure problem; Laboratory experiment; Second-price sealed-bid auction;

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Find related papers by JEL classification:
C9 - Mathematical and Quantitative Methods - - Design of Experiments
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions

This paper has been announced in the following NEP Reports:

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.:
  1. Noussair, Charles & Silver, Jonathon, 2006. "Behavior in all-pay auctions with incomplete information," Games and Economic Behavior, Elsevier, vol. 55(1), pages 189-206, April. [Downloadable!] (restricted)
  2. Yasar Barut & Dan Kovenock & Charles Noussair, 1999. "A Comparison of Multiple-Unit All-Pay and Winner-Pay Auctions Under Incomplete Information," CIG Working Papers FS IV 99-09, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG). [Downloadable!]
    Other versions:
  3. Cramton, Peter C, 1995. "Money Out of Thin Air: The Nationwide Narrowband PCS Auction," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 4(2), pages 267-343, Summer.
    Other versions:
  4. van Damme, Eric, 2002. "The European UMTS-auctions," European Economic Review, Elsevier, vol. 46(4-5), pages 846-858, May. [Downloadable!] (restricted)
  5. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation, Yale University. [Downloadable!]
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  7. Lawrence M. Ausubel & Peter Cramton, 1998. "The Optimality of Being Efficient," Papers of Peter Cramton 98wpoe, University of Maryland, Department of Economics - Peter Cramton, revised 18 Jun 1999. [Downloadable!]
  8. Szentes, Balazs & Rosenthal, Robert W., 2003. "Three-object two-bidder simultaneous auctions: chopsticks and tetrahedra," Games and Economic Behavior, Elsevier, vol. 44(1), pages 114-133, July. [Downloadable!] (restricted)
  9. Jan Potters & Casper G. de Vries & Frans van Winden, 1998. "An Experimental Examination of Rational Rent-Seeking," Tinbergen Institute Discussion Papers 98-068/1, Tinbergen Institute.
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  10. Jeremy Bulow & Ming Huang & Paul Klemperer, 1999. "Toeholds and Takeovers," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 427-454, June. [Downloadable!] (restricted)
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  11. Onderstal, S., 2002. "The chopstick auction," Discussion Paper 35, Tilburg University, Center for Economic Research. [Downloadable!]
  12. Bykowsky, Mark M & Cull, Robert J & Ledyard, John O, 2000. "Mutually Destructive Bidding: The FCC Auction Design Problem," Journal of Regulatory Economics, Springer, vol. 17(3), pages 205-28, May. [Downloadable!] (restricted)
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  13. Damme, E. van, 2002. "The European UMTS-auctions," Discussion Paper 100, Tilburg University, Center for Economic Research. [Downloadable!]
  14. McMillan, John, 1994. "Selling Spectrum Rights," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 145-62, Summer. [Downloadable!] (restricted)
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  16. Rosenthal, Robert W. & Wang, Ruqu, 1996. "Simultaneous Auctions with Synergies and Common Values," Games and Economic Behavior, Elsevier, vol. 17(1), pages 32-55, November. [Downloadable!] (restricted)
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  17. Davis, Douglas D & Reilly, Robert J, 1998. " Do Too Many Cooks Always Spoil the Stew? An Experimental Analysis of Rent-Seeking and the Role of a Strategic Buyer," Public Choice, Springer, vol. 95(1-2), pages 89-115, April. [Downloadable!] (restricted)
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  18. McAfee, R Preston & McMillan, John, 1996. "Analyzing the Airwaves Auction," Journal of Economic Perspectives, American Economic Association, vol. 10(1), pages 159-75, Winter. [Downloadable!] (restricted)
  19. 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)
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  21. Kagel, J.H. & Levin, D., 1988. "Independent Private Value Auctions: Bidder Behavior In First, Second And Third-Price Auctions With Varying Numbers Of Bidders," Papers 13, Houston - Department of Economics.
    Other versions:
  22. Cramton, Peter, 1998. "The Efficiency of the FCC Spectrum Auctions," Journal of Law & Economics, University of Chicago Press, vol. 41(2), pages 727-36, October.
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  23. Szentes, Balazs & Rosenthal, Robert W., 2003. "Beyond chopsticks: Symmetric equilibria in majority auction games," Games and Economic Behavior, Elsevier, vol. 45(2), pages 278-295, November. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Sandro Brusco & Giuseppe Lopomo, 2009. "Simultaneous ascending auctions with complementarities and known budget constraints," Economic Theory, Springer, vol. 38(1), pages 105-124, January. [Downloadable!] (restricted)
  2. Emiel Maasland & Sander Onderstal, 2006. "Going, Going, Gone! A Swift Tour of Auction Theory and its Applications," De Economist, Springer, vol. 154(2), pages 197-249, June. [Downloadable!] (restricted)
    Other versions:
  3. Leufkens, Kasper & Peeters, Ronald & Vorsatz, Marc, 2006. "Sequential auctions with synergies: An experimental analysis," Research Memoranda 040, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
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