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Bounds on Revenue Distributions in Counterfactual Auctions with Reserve Prices

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  • Xun Tang

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    (Department of Economics, University of Pennsylvania)

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    Abstract

    In first-price auctions with interdependent bidder values, the distributions of private signals and values cannot be uniquely recovered from bids in Bayesian Nash equilibria. Non-identification invalidates structural analyses that rely on the exact knowledge of model primitives. In this paper I introduce tight, informative bounds on the distribution of revenues in counterfactual first-price and second-price auctions with binding reserve prices. These robust bounds are identified from distributions of equilibrium bids in first-price auctions under minimal restrictions where I allow for affiliated signals and both private and common-value paradigms. The bounds can be used to compare auction formats and to select optimal reserve prices. I propose consistent nonparametric estimators of the bounds. I extend the approach to account for observed heterogeneity across auctions, as well as binding reserve prices in the data. I use a recent data of 6,721 first-price auctions of U.S. municipal bonds to estimate bounds on counterfactual revenue distributions. I then bound optimal reserve prices for sellers with various risk attitudes.

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    Bibliographic Info

    Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 08-042.

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    Length: 85 pages
    Date of creation: 02 Sep 2008
    Date of revision:
    Handle: RePEc:pen:papers:08-042

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    Keywords: Empirical auctions; interdependent values; affiliated signals; partial identification; bounds; counter factual revenues; nonparametric estimation; municipal bonds;

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    15. 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.
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    17. Han Hong, 2000. "Increasing Competition and the Winner's Curse: Evidence from Procurement," Econometric Society World Congress 2000 Contributed Papers 1628, Econometric Society.
    18. Laffont, Jean-Jacques & Vuong, Quang, 1996. "Structural Analysis of Auction Data," American Economic Review, American Economic Association, vol. 86(2), pages 414-20, May.
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    20. Paarsch, Harry J., 1997. "Deriving an estimate of the optimal reserve price: An application to British Columbian timber sales," Journal of Econometrics, Elsevier, vol. 78(2), pages 333-357, June.
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