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Lowest Unique Bid Auctions over the Internet: Ability, Lottery or Scam?

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Author Info
Andrea Gallice ()

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Abstract

A lowest unique bid auction allocates a good to the agent who submits the lowest bid that is not matched by any other bid. This peculiar auction format is getting increasingly popular over the internet. We show that such a selling mechanism is unprofitable if bidders are rational but can become highly lucrative if bidders are myopic. In this second case, we analyze the key role played by the existence of some private signals that the seller sends to the bidders. Data about actual auctions confirm the profitability of the mechanism and the bounded rationality of the bidders.

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Publisher Info
Paper provided by Department of Economic Policy, Finance and Development (DEPFID), University of Siena in its series Department of Economic Policy, Finance and Development (DEPFID) University of Siena with number 0608.

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Date of creation: Jun 2008
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Handle: RePEc:usi:depfid:0608

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Related research
Keywords: Lowest Unique Bid Auctions; Signals; Bounded Rationality.;

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Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Klemperer, P., 1999. "Auction Theory: a Guide to the Literature," Economics Papers 1999-w12, Economics Group, Nuffield College, University of Oxford.
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  2. Robert Ostling & Joseph T Wang & Eileen Chou & Colin F Camerer, 2007. "Field and Lab Convergence in Poisson LUPI games," Levine's Bibliography 122247000000001530, UCLA Department of Economics. [Downloadable!]
  3. Vincent P. Crawford & Nagore Iriberri, 2007. "Fatal Attraction: Salience, Naivete, and Sophistication in Experimental Hide-and-Seek Games," Levine's Bibliography 321307000000000861, UCLA Department of Economics. [Downloadable!]
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  4. Alvin E. Roth & Axel Ockenfels, 2002. "Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet," American Economic Review, American Economic Association, vol. 92(4), pages 1093-1103, September. [Downloadable!]
    Other versions:
  5. Raviv, Yaron & Virag, Gabor, 2009. "Gambling by auctions," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 369-378, May. [Downloadable!] (restricted)
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