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The Effect of Shill Bidding upon Prices: Experimental Evidence

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Author Info

  • Georgia Kosmopoulou

    (University of Oklahoma)

  • Dakshina G. De Silva

    (Texas Tech University)

Abstract

This paper explores, through a series of experiments, the effect of shill bidding upon revenues and prices in auctions. We study the practice of shill bidding in a common value framework. Our findings are consistent with the theoretical prediction that, if bidders are aware of the possibility of seller participation in an auction, shill bidding lowers profits on average. Shill bidding can alleviate the problem of the winner's curse by lowering the price and it can, thus, provide benefits to the bidders. Finally, even though there were too many bidders that submitted bids in these auctions, the number of entrants was not affected by the possibility of seller participation, which is also consistent with the theory.

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File URL: http://128.118.178.162/eps/exp/papers/0512/0512002.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Experimental with number 0512002.

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Length: 38 pages
Date of creation: 05 Dec 2005
Date of revision:
Handle: RePEc:wpa:wuwpex:0512002

Note: Type of Document - pdf; pages: 38
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Web page: http://128.118.178.162

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Keywords: Auctions; Experiment; Shill Bidding; Entry;

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References

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  1. Jacob K. Goeree & Theo Offerman, 2000. "Efficiency in Auctions with Private and Common Values: An Experimental Study," Tinbergen Institute Discussion Papers 00-045/1, Tinbergen Institute.
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  8. R. Preston McAfee & Daniel Vincent, 1992. "Updating the Reserve Price in Common Value Auctions," Discussion Papers 977, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Engelbrecht-Wiggans, Richard & Nonnenmacher, Tomas, 1999. "A Theoretical Basis for 19th-Century Changes to the Port of New York Imported Goods Auction," Explorations in Economic History, Elsevier, vol. 36(3), pages 232-245, July.
  10. Lucking-Reiley, David, 2000. "Auctions on the Internet: What's Being Auctioned, and How?," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 227-52, September.
  11. Deltas, George, 1999. "When does cheating on mail-in bids pay? A guide for the dishonest auctioneer," Journal of Economic Behavior & Organization, Elsevier, vol. 40(3), pages 313-323, November.
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  13. Ruqu Wang & Parimal Kanti Bag & Emim Murat Dinlersoz, 1998. "More on Phantom Bidding," Working Papers 976, Queen's University, Department of Economics.
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  16. Christopher Avery & John H. Kagel, 1997. "Second-Price Auctions with Asymmetric Payoffs: An Experimental Investigation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(3), pages 573-603, 09.
  17. Kagel, John H & Harstad, Ronald M & Levin, Dan, 1987. "Information Impact and Allocation Rules in Auctions with Affiliated Private Values: A Laboratory Study," Econometrica, Econometric Society, vol. 55(6), pages 1275-1304, November.
  18. Indranil Chakraborty & Georgia Kosmopoulou, 2004. "Auctions with shill bidding," Economic Theory, Springer, vol. 24(2), pages 271-287, August.
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Cited by:
  1. Tim Hoppe & Abdolkarim Sadrieh, 2007. "An Experimental Assessment of Confederate Reserve Price Bids in Online Auction," FEMM Working Papers 07011, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  2. Axel Ockenfels & David Reiley & Abdolkarim Sadrieh, 2006. "Online Auctions," NBER Working Papers 12785, National Bureau of Economic Research, Inc.

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