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The High/Low Divide: Self-Selection by Values in Auction Choice

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  • Radosveta Ivanova-Stenzel

    ()
    (Department of Economics, Humboldt-University of Berlin)

  • Timothy Salmon

    ()
    (Department of Economics, Florida State University)

Abstract

Most prior theoretical and experimental work involving auction choice has assumed bidders only find out their value after making a choice of which auction to enter. In this paper we examine whether or not subjects knowing their value prior to making an auction choice impacts their choice decision and/or the outcome of the auctions. The results show a strong impact. Subjects with low values choose the first price sealed bid auction more often while subjects with high values choose the ascending auction more often. The average number of bidders in both formats ended up being on average the same, but due to the self-selection bias the ascending auction raised as much revenue on average as the first price sealed bid auction. The two formats also generate efficiency levels that are roughly equivalent though the earnings of bidders are higher in the ascending auction.

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File URL: ftp://econpapers.fsu.edu/RePEc/fsu/wpaper/wp2009_06_02.pdf
File Function: First version, 2009-06
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Bibliographic Info

Paper provided by Department of Economics, Florida State University in its series Working Papers with number wp2009_06_02.

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Length: 14
Date of creation: Jun 2009
Date of revision:
Handle: RePEc:fsu:wpaper:wp2009_06_02

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Keywords: bidder preferences; private values; sealed bid auctions; ascending auctions; endogenous entry;

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  1. Radosveta Ivanova-Stenzel & Timothy C. Salmon, 2004. "Bidder Preferences among Auction Institutions," Economic Inquiry, Western Economic Association International, vol. 42(2), pages 223-236, April.
  2. Dan Levin & James L. Smith, 2002. "Entry coordination in auctions and social welfare: An experimental investigation," International Journal of Game Theory, Springer, vol. 30(3), pages 321-350.
  3. Jacob K. Goeree & Theo Offerman, 1999. "Competitive Bidding in Auctions with Private and Common Values," Virginia Economics Online Papers 337, University of Virginia, Department of Economics.
  4. Richard Engelbrecht-Wiggans & Elena Katok, 2007. "Regret in auctions: theory and evidence," Economic Theory, Springer, vol. 33(1), pages 81-101, October.
  5. 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.
  6. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
  7. Smith, James L. & Levin, Dan, 1996. "Ranking Auctions with Risk Averse Bidders," Journal of Economic Theory, Elsevier, vol. 68(2), pages 549-561, February.
  8. Palfrey, Thomas R. & Pevnitskaya, Svetlana, 2003. "Endogenous Entry and Self-selection in Private Value Auctions: An Experimental Study," Working Papers 1172, California Institute of Technology, Division of the Humanities and Social Sciences.
  9. Svetlana Pevnitskaya, 2003. "Endogenous Entry in First-Price Private Value Auctions: the Self-Selection Effect," Working Papers 03-03, Ohio State University, Department of Economics.
  10. David Lucking-Reiley, 1999. "Using Field Experiments to Test Equivalence between Auction Formats: Magic on the Internet," American Economic Review, American Economic Association, vol. 89(5), pages 1063-1080, December.
  11. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June.
  12. Paul Klemperer, 2002. "What Really Matters in Auction Design," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 169-189, Winter.
  13. Ivanova-Stenzel, Radosveta & Salmon, Timothy C., 2006. "Revenue Equivalence Revisited," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 175, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  14. Goeree, Jacob K. & Offerman, Theo & Schram, Arthur, 2006. "Using first-price auctions to sell heterogeneous licenses," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 555-581, May.
  15. Axel Ockenfels & David Reiley & Abdolkarim Sadrieh, 2006. "Online Auctions," NBER Working Papers 12785, National Bureau of Economic Research, Inc.
  16. Patrick Bajari & Ali Hortacsu, 2000. "Winner's Curse, Reserve Prices and Endogenous Entry: Empirical Insights from eBay Auctions," Econometric Society World Congress 2000 Contributed Papers 1927, Econometric Society.
  17. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  18. Radosveta Ivanova-Stenzel & Timothy C. Salmon, 2008. "Robustness Of Bidder Preferences Among Auction Institutions," Economic Inquiry, Western Economic Association International, vol. 46(3), pages 355-368, 07.
  19. Vincent P. Crawford & Miguel A. Costa-Gomes & Nagore Iriberri, 2010. "Strategic Thinking," Levine's Working Paper Archive 661465000000001148, David K. Levine.
  20. Bajari, Patrick & Hortacsu, Ali, 2003. " The Winner's Curse, Reserve Prices, and Endogenous Entry: Empirical Insights from eBay Auctions," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 329-55, Summer.
  21. Paulo K. Monteiro & Flavio M. Menezes, 2000. "original papers : Auctions with endogenous participation," Review of Economic Design, Springer, vol. 5(1), pages 71-89.
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