Nonparametric Tests for Common Values in First-Price Sealed-Bid Auctions
AbstractWe develop tests for common values at first-price sealed-bid auctions. Our tests are nonparametric, require observation only of the bids submitted at each auction, and are based on the fact that the “winner’s curse” arises only in common values auctions. The tests build on recently developed methods for using observed bids to estimate each bidder’s conditional expectation of the value of winning the auction. Equilibrium behavior implies that in a private values auction these expectations are invariant to the number of opponents each bidder faces, while with common values they are decreasing in the number of opponents. This distinction forms the basis of our tests. We consider both exogenous and endogenous variation in the number of bidders. Monte Carlo experiments show that our tests can perform well in samples of moderate sizes. We apply our tests to two different types of U.S. Forest Service timber auctions. For unit-price (“scaled”) sales often argued to fit a private values model, our tests consistently fail to find evidence of common values. For “lumpsum” sales, where a priori arguments for common values appear stronger, our tests yield mixed evidence against the private values hypothesis.
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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2004.149.
Date of creation: Dec 2004
Date of revision:
First-price auctions; Common values; Private values; Nonparametric testing; Winner’s curse; Stochastic dominance; Endogenous participation; Timber auctions;
Other versions of this item:
- 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.
- Philip A. Haile & Han Hong & Matthew Shum, 2003. "Nonparametric Tests for Common Values at First-Price Sealed-Bid Auctions," NBER Working Papers 10105, National Bureau of Economic Research, Inc.
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-01-16 (All new papers)
- NEP-ECM-2005-01-18 (Econometrics)
- NEP-GTH-2005-09-05 (Game Theory)
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.:
- Paarsch, Harry J., 1992. "Deciding between the common and private value paradigms in empirical models of auctions," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 191-215.
- Wolak, Frank A, 1991. "The Local Nature of Hypothesis Tests Involving Inequality Constraints in Nonlinear Models," Econometrica, Econometric Society, vol. 59(4), pages 981-95, July.
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