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Discrete Clock Auctions: An Experimental Study

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  • Peter Cramton

    ()
    (Economics Department, University of Maryland)

  • Emel Filiz-Ozbay

    ()

  • Erkut Ozbay

    ()

  • Pacharasut Sujarittanonta

    ()

Abstract

We analyze the implications of different pricing rules in discrete clock auctions. The two most common pricing rules are highest-rejected bid (HRB) and lowest-accepted bid (LAB). Under HRB, the winners pay the lowest price that clears the market; under LAB, the winners pay the highest price that clears the market. Both the HRB and LAB auctions maximize revenues and are fully efficient in our setting. Our experimental results indicate that the LAB auction achieves higher revenues. This also is the case in a version of the clock auction with provisional winners. This revenue result may explain the frequent use of LAB pricing. On the other hand, HRB is successful in eliciting true values of the bidders both theoretically and experimentally.

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Bibliographic Info

Paper provided by University of Maryland, Department of Economics - Peter Cramton in its series Papers of Peter Cramton with number 10dca.

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Length: 33 pages
Date of creation: 2010
Date of revision: 2010
Publication status: Published in Working Paper, University of Maryland, June 2010
Handle: RePEc:pcc:pccumd:10dca

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Postal: Economics Department, University of Maryland, College Park, MD 20742-7211
Phone: (202) 318-0520
Fax: (202) 318-0520
Web page: http://www.cramton.umd.edu

Related research

Keywords: Auctions; clock auctions; spectrum auctions; experimental economics; behavioral economics; market design;

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References

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  1. David J. Cooper & Hanming Fang, 2006. "Understanding Overbidding in Second Price Auctions: An Experimental Study," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1557, Cowles Foundation for Research in Economics, Yale University.
  2. Lange, Andreas & Ratan, Anmol, 2010. "Multi-dimensional reference-dependent preferences in sealed-bid auctions - How (most) laboratory experiments differ from the field," Games and Economic Behavior, Elsevier, Elsevier, vol. 68(2), pages 634-645, March.
  3. Lawrence M. Ausubel & Peter Cramton, 2004. "Auctioning Many Divisible Goods," Journal of the European Economic Association, MIT Press, MIT Press, vol. 2(2-3), pages 480-493, 04/05.
  4. Lawrence M. Ausubel & Peter Cramton, 2009. "Virtual Power Plant Auctions," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 09vpp, University of Maryland, Department of Economics - Peter Cramton, revised 2009.
  5. Vincent P. Crawford & Nagore Iriberri, 2007. "Level-k Auctions: Can a Nonequilibrium Model of Strategic Thinking Explain the Winner's Curse and Overbidding in Private-Value Auctions?," Econometrica, Econometric Society, Econometric Society, vol. 75(6), pages 1721-1770, November.
  6. Jacob K. Goeree & Charles A. Holt & Thomas R. Palfrey, 2000. "Quantal Response Equilibrium and Overbidding in Private-Value Auctions," Virginia Economics Online Papers 345, University of Virginia, Department of Economics.
  7. Kagel, John H & Levin, Dan, 2001. "Behavior in Multi-unit Demand Auctions: Experiments with Uniform Price and Dynamic Vickrey Auctions," Econometrica, Econometric Society, Econometric Society, vol. 69(2), pages 413-54, March.
  8. Richard Engelbrecht-Wiggans & Elena Katok, 2007. "Regret in auctions: theory and evidence," Economic Theory, Springer, Springer, vol. 33(1), pages 81-101, October.
  9. Ronald Harstad, 2000. "Dominant Strategy Adoption and Bidders' Experience with Pricing Rules," Experimental Economics, Springer, Springer, vol. 3(3), pages 261-280, December.
  10. Coppinger, Vicki M & Smith, Vernon L & Titus, Jon A, 1980. "Incentives and Behavior in English, Dutch and Sealed-Bid Auctions," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 18(1), pages 1-22, January.
  11. Cox, James C & Smith, Vernon L & Walker, James M, 1988. " Theory and Individual Behavior of First-Price Auctions," Journal of Risk and Uncertainty, Springer, Springer, vol. 1(1), pages 61-99, March.
  12. 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, Econometric Society, vol. 55(6), pages 1275-1304, November.
  13. 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, Houston - Department of Economics 13, Houston - Department of Economics.
  14. Thomas Palfrey, 2002. "Quantal Response Equilibrium and Overbidding in Private Value Auctions," Theory workshop papers, UCLA Department of Economics 357966000000000089, UCLA Department of Economics.
  15. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, Springer, vol. 10(2), pages 171-178, June.
  16. Peter Cramton & Pacharasut Sujarittanonta, 2009. "Pricing Rule in a Clock Auction," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 09prca, University of Maryland, Department of Economics - Peter Cramton, revised 2009.
  17. Emel Filiz-Ozbay & Erkut Y. Ozbay, 2007. "Auctions with Anticipated Regret: Theory and Experiment," American Economic Review, American Economic Association, American Economic Association, vol. 97(4), pages 1407-1418, September.
  18. Lawrence M. Ausubel & Peter Cramton & Emel Filiz-Ozbay & Nathaniel Higgins & Erkut Ozbay & Andrew Stocking, 2009. "Common-Value Auctions with Liquidity Needs: An Experimental Test of a Troubled Assets Reverse Auction," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 09cvawln, University of Maryland, Department of Economics - Peter Cramton, revised 2012.
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Citations

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Cited by:
  1. Peter Cramton, 2012. "Designed to Fail: The Medicare Auction for Durable Medical Equipment," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 12cekdtf, University of Maryland, Department of Economics - Peter Cramton, revised 2012.
  2. Steven Tucker & Charles Noussair & Anthony M. Kwasnica & Katerina Sherstyuk, 2013. "Multiunit Auctions," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 27(3), pages 461-490, 07.
  3. Peter Cramton & Emel Filiz-Ozbay & Erkut Ozbay & Pacharasut Sujarittanonta, 2012. "Fear of losing in a clock auction," Review of Economic Design, Springer, Springer, vol. 16(2), pages 119-134, September.
  4. Peter Cramton, 2012. "Auction Design for Medicare Durable Medical Equipment," Papers of Peter Cramton, University of Maryland, Department of Economics - Peter Cramton 11cadm, University of Maryland, Department of Economics - Peter Cramton, revised 2012.

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