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Auction fever: Rising revenue in second-price auction formats

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  • Ehrhart, Karl-Martin
  • Ott, Marion
  • Abele, Susanne

Abstract

The prevalent term “auction fever” visualizes that ascending auctions – inconsistent with theory – are likely to provoke higher bids than one-shot auctions. To explore and isolate causes of auction fever experimentally, we design four different strategy-proof auction formats and order these according to expected rising bids based on pseudo-endowment effect arguments (psychological ownership and disparity between willingness to pay and willingness to accept). Observed revenues in the experiment in the four formats rank as expected if bidders have private uncertain values (the private information of a bidder is the distribution of her value). A control treatment supports our view that the traditional private certain values approach prevents auction fever in the laboratory. Another control treatment with a procurement auction relates the auction fever bids to bids in a one-shot auction with real endowments. We conclude that, when bidders are uncertain about their valuations, auctions that foster pseudo-endowment may raise bids and revenues.

Suggested Citation

  • Ehrhart, Karl-Martin & Ott, Marion & Abele, Susanne, 2015. "Auction fever: Rising revenue in second-price auction formats," Games and Economic Behavior, Elsevier, vol. 92(C), pages 206-227.
  • Handle: RePEc:eee:gamebe:v:92:y:2015:i:c:p:206-227
    DOI: 10.1016/j.geb.2015.06.006
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    Cited by:

    1. Theo Offerman & Giorgia Romagnoli & Andreas Ziegler, 2020. "Why are open ascending auctions popular? The role of information aggregation and behavioral biases," Tinbergen Institute Discussion Papers 20-071/I, Tinbergen Institute.
    2. Ehrhart, Karl-Martin & Ott, Marion, 2019. "How the auction design influences procurement prices: An experiment," ZEW Discussion Papers 19-061, ZEW - Leibniz Centre for European Economic Research.
    3. Zhang, Sookie Xue & Bayer, Ralph-Christopher, 2018. "Does suspending an English Auction increase revenues?," Economics Letters, Elsevier, vol. 162(C), pages 98-100.
    4. Fabian Ocker, 2018. "“Bid more, pay less” – overbidding and the Bidder’s curse in teleshopping auctions," Electronic Markets, Springer;IIM University of St. Gallen, vol. 28(4), pages 491-508, November.
    5. Anatolitis, Vasilios & Welisch, Marijke, 2017. "Putting renewable energy auctions into action – An agent-based model of onshore wind power auctions in Germany," Energy Policy, Elsevier, vol. 110(C), pages 394-402.
    6. Malmendier, Ulrike & Szeidl, Adam, 2020. "Fishing for fools," Games and Economic Behavior, Elsevier, vol. 122(C), pages 105-129.

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    More about this item

    Keywords

    Auction fever; Experiment; Private uncertain values; Pseudo-endowment effect;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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