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

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  • Andrea Gallice

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.

Suggested Citation

  • Andrea Gallice, 2008. "Lowest Unique Bid Auctions over the Internet: Ability, Lottery or Scam?," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 0608, Department of Economic Policy, Finance and Development (DEPFID), University of Siena.
    • Handle: RePEc:usi:depfid:0608
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    File URL: http://repec.deps.unisi.it/depfid/text608.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Lowest Unique Bid Auctions; Signals; Bounded Rationality.;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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