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English Auctions with toeholds: An experimental study

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  • Sotiris Georganas
  • Rosemarie Nagel

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Abstract

We run experiments on English Auctions where the bidders already own a part (toehold) of the good for sale. The theory predicts a very strong effect of even small toeholds, however we find the effects are not so strong in the lab. We explain this by analyzing the flatness of the payoff functions, which leads to relatively costless deviations from the equilibrium strategies. We find that a levels of reasoning model explains the results better than the Nash equilibrium. Moreover, we find that although big toeholds can be effective, the cost to acquire them might be higher than the strategic benefit they bring. Finally our results show that in general the seller’s revenues fall when the playing field is uneven.

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File URL: http://www.econ.upf.edu/docs/papers/downloads/1102.pdf
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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1102.

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Date of creation: Jul 2008
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Handle: RePEc:upf:upfgen:1102

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Web page: http://www.econ.upf.edu/

Related research

Keywords: Experiments; toehold auction; takeover; payoff; flatness; quantal response; level-k; LeeX;

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Cited by:
  1. Saral, Krista Jabs, 2010. "Speculation and Demand Reduction in English Clock Auctions with Resale," MPRA Paper 25139, University Library of Munich, Germany.

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