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An Experimental Comparison of Sequential First- and Second-Price Auctions with Synergies

  • Leufkens Kasper


    (Department of Economics, Maastricht University, Maastricht, The Netherlands)

  • Peeters Ronald


    (Department of Economics, Maastricht University, Maastricht, The Netherlands)

  • Vorsatz Marc


    (Departamento de Análisis Ecónomico II, Universidad Nacional de Educación a Distancia, Madrid, Spain)

Using laboratory experiments, we compare the performance of first-price and second-price auctions when two stochastically equivalent objects are auctioned sequentially and the winner of the first auction receives a positive synergy in the second auction. According to the risk-neutral subgame perfect Nash equilibrium, the second-price auction provides more efficiency and a higher revenue to the seller, but a lower ex ante expected payoff to the bidders. Our experimental data indicate precisely the opposite results for format comparisons: the first-price auction gives rise to larger levels of efficiency and revenue, but lower payoffs to the bidders. Despite the lower payoff, the likelihood of an ex post loss is also smaller under the first-price auction. Our results therefore support the common use of the first-price auction in governmental and business-to-business procurements.

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Article provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.

Volume (Year): 12 (2012)
Issue (Month): 1 (January)
Pages: 1-28

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Handle: RePEc:bpj:bejtec:v:12:y:2012:i:1:n:2
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  1. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
  2. Ashenfelter, Orley & Genesove, David, 1992. "Testing for Price Anomalies in Real-Estate Auctions," American Economic Review, American Economic Association, vol. 82(2), pages 501-05, May.
  3. Dakshina G. De Silva, 2005. "Synergies in Recurring Procurement Auctions: An Empirical Investigation," Economic Inquiry, Western Economic Association International, vol. 43(1), pages 55-66, January.
  4. De Silva, Dakshina G. & Jeitschko, Thomas D. & Kosmopoulou, Georgia, 2005. "Stochastic synergies in sequential auctions," International Journal of Industrial Organization, Elsevier, vol. 23(3-4), pages 183-201, April.
  5. Lawrence M. Ausubel & Peter Cramton & R. Preston McAfee & John McMillan, 1998. "Synergies in Wireless Telephony: Evidence from the Broadband PCS Auctions," Papers of Peter Cramton 97jems, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
  6. Alan Beggs & Kathryn Graddy, 1997. "Declining Values and the Afternoon Effect: Evidence from Art Auctions," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 544-565, Autumn.
  7. Branco, Fernando, 1997. "Sequential auctions with synergies: An example," Economics Letters, Elsevier, vol. 54(2), pages 159-163, February.
  8. repec:feb:framed:00135 is not listed on IDEAS
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