Lowest Unique Bid Auctions over the Internet: Ability, Lottery or Scam?
AbstractA 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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Bibliographic InfoPaper 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.
Date of creation: Jun 2008
Date of revision:
Lowest Unique Bid Auctions; Signals; Bounded Rationality.;
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; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-30 (All new papers)
- NEP-CTA-2008-07-30 (Contract Theory & Applications)
- NEP-GTH-2008-07-30 (Game Theory)
- NEP-UPT-2008-07-30 (Utility Models & Prospect Theory)
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