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Bid Functions in Auctions and Fair Division Games: Experimental Evidence

  • Werner Güth
  • Radosveta Ivanova-Stenzel
  • Manfred Königstein
  • Martin Strobel

In auctions a seller offers a commodity for sale and collects the revenue. In fair division games the object is collectively owned by the group of bidders who equally share the revenue. We run an experiment in which the participants face four types of allocation games (auctions and fair division game under two price rules, first- versus second-price rule). We collect entire bid functions rather than bids for single values and investigate price and efficiency of the different trading institutions. We find that the first-price auction is more efficient than the second-price auction, whereas economic rationality assuming heterogeneous bidders suggests the opposite. Furthermore, we study the structure of individual bid functions. Copyright Verein für Socialpolitik and Blackwell Publishers Ltd 2002.

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Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 3 (2002)
Issue (Month): 4 (November)
Pages: 461-484

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Handle: RePEc:bla:germec:v:3:y:2002:i:4:p:461-484
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  1. John G. Riley & William Samuelson, 1979. "Optimal Auctions," UCLA Economics Working Papers 152, UCLA Department of Economics.
  2. Matthews, Steven, 1987. "Comparing Auctions for Risk Averse Buyers: A Buyer's Point of View," Econometrica, Econometric Society, vol. 55(3), pages 633-46, May.
  3. Plum, M, 1992. "Characterization and Computation of Nash-Equilibria for Auctions with Incomplete Information," International Journal of Game Theory, Springer, vol. 20(4), pages 393-418.
  4. Maskin, Eric S & Riley, Joan G, 1985. "Auction Theory with Private Values," American Economic Review, American Economic Association, vol. 75(2), pages 150-55, May.
  5. Riley, John G, 1989. "Expected Revenue from Open and Sealed Bid Auctions," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 41-50, Summer.
  6. Franciosi Robert & Isaac R. Mark & Pingry David E. & Reynolds Stanley S., 1993. "An Experimental Investigation of the Hahn-Noll Revenue Neutral Auction for Emissions Licenses," Journal of Environmental Economics and Management, Elsevier, vol. 24(1), pages 1-24, January.
  7. Matthew Rabin, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Econometrica, Econometric Society, vol. 68(5), pages 1281-1292, September.
  8. Güth, Werner & Ivanova, Radosveta & Königstein, Manfred & Strobel, Martin, 1999. "Learning to bid: An experimental study of bid function adjustments in auctions and fair division games," SFB 373 Discussion Papers 1999,70, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  9. Güth, Werner & Ivanova-Stenzel, Radosveta & Wolfstetter, Elmar, 2001. "Bidding behavior in asymmetric auctions: An experimental study," SFB 373 Discussion Papers 2001,15, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  10. Cox, James C & Smith, Vernon L & Walker, James M, 1988. " Theory and Individual Behavior of First-Price Auctions," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 61-99, March.
  11. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
  12. Dyer, Douglas & Kagel, John H & Levin, Dan, 1989. "A Comparison of Naive and Experienced Bidders in Common Value Offer Auctions: A Laboratory Analysis," Economic Journal, Royal Economic Society, vol. 99(394), pages 108-15, March.
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