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

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Author Info
Radosveta Ivanova-Stenzel () (Department of Economics, Humboldt-University of Berlin)
Timothy Salmon () (Department of Economics, Florida State University)

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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
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File Function: First version, 2009-06
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Publisher 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
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Handle: RePEc:fsu:wpaper:wp2009_06_02

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

Find related papers by JEL classification:
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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  1. Richard Engelbrecht-Wiggans & Elena Katok, 2007. "Regret in auctions: theory and evidence," Economic Theory, Springer, vol. 33(1), pages 81-101, October. [Downloadable!] (restricted)
  2. 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.
  3. Palfrey, Thomas R. & Pevnitskaya, Svetlana, 2008. "Endogenous entry and self-selection in private value auctions: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 66(3-4), pages 731-747, June. [Downloadable!] (restricted)
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  4. 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. [Downloadable!] (restricted)
  5. Levin, Dan & Smith, James L, 1994. "Equilibrium in Auctions with Entry," American Economic Review, American Economic Association, vol. 84(3), pages 585-99, June. [Downloadable!] (restricted)
  6. Jacob K. Goeree & Theo Offerman, 2003. "Competitive Bidding in Auctions with Private and Common Values," Economic Journal, Royal Economic Society, vol. 113(489), pages 598-613, 07. [Downloadable!] (restricted)
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  7. Paul Klemperer, 2002. "What Really Matters in Auction Design," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 169-189, Winter. [Downloadable!] (restricted)
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  8. Elena Katok & Richard Engelbrecht-Wiggans, 2004. "Experiments on Auction Valuation and Endogenous Entry," Working Papers ek1, The Pennsylvania State University, Laboratory for Economic Mangement and Auctions, revised 01 Oct 2004. [Downloadable!]
  9. Smith, James L. & Levin, Dan, 1996. "Ranking Auctions with Risk Averse Bidders," Journal of Economic Theory, Elsevier, vol. 68(2), pages 549-561, February. [Downloadable!] (restricted)
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