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Comparative study of one-bid versus two-bid auctions

Listed author(s):
  • Ivanova-Stenzel, Radosveta
  • Sonsino, Doron

We compare the standard one-bid first price auction to a corresponding two-bid first price auction where each buyer may place two bids: a high bid and a low one and the winner pays his low bid if this was higher than all other bids. We characterize the equilibria of the two mechanisms and prove some results on the ranking of revenues and expected utilities across the two mechanisms for the symmetric case. We show that subjects in a computerized experiment prefer the two-bid auction over the one-bid auction when given the possibility of choosing among the two and we claim that this and other aspects of subjects' behavior conform to the equilibrium predictions for risk-averse subjects. We also report some discrepancies between the experimental results and the equilibrium predictions and provide some alternative explanations to the observed behavior.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 54 (2004)
Issue (Month): 4 (August)
Pages: 561-583

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Handle: RePEc:eee:jeborg:v:54:y:2004:i:4:p:561-583
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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  1. Kagel, John H. & Levin, Dan, 1985. "Individual bidder behavior in first-price private value auctions," Economics Letters, Elsevier, vol. 19(2), pages 125-128.
  2. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
  3. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-392, June.
  4. Guth, Werner & Ivanova-Stenzel, Radosveta & Wolfstetter, Elmar, 2005. "Bidding behavior in asymmetric auctions: An experimental study," European Economic Review, Elsevier, vol. 49(7), pages 1891-1913, October.
  5. Harrison, Glenn W, 1989. "Theory and Misbehavior of First-Price Auctions," American Economic Review, American Economic Association, vol. 79(4), pages 749-762, September.
  6. Kagel, John H & Roth, Alvin E, 1992. "Theory and Misbehavior in First-Price Auctions: Comment," American Economic Review, American Economic Association, vol. 82(5), pages 1379-1391, December.
  7. Paul Pezanis-Christou, 2002. "On the impact of low-balling: Experimental results in asymmetric auctions," International Journal of Game Theory, Springer;Game Theory Society, vol. 31(1), pages 69-89.
  8. Werner Güth & Radosveta Ivanova-Stenzel & Manfred Königstein & Martin Strobel, 2002. "Bid Functions in Auctions and Fair Division Games: Experimental Evidence," German Economic Review, Verein für Socialpolitik, vol. 3(4), pages 461-484, November.
  9. Coppinger, Vicki M & Smith, Vernon L & Titus, Jon A, 1980. "Incentives and Behavior in English, Dutch and Sealed-Bid Auctions," Economic Inquiry, Western Economic Association International, vol. 18(1), pages 1-22, January.
  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. 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.
  12. Tversky, Amos & Kahneman, Daniel, 1986. "Rational Choice and the Framing of Decisions," The Journal of Business, University of Chicago Press, vol. 59(4), pages 251-278, October.
  13. Conlisk, John, 1993. "The Utility of Gambling," Journal of Risk and Uncertainty, Springer, vol. 6(3), pages 255-275, June.
  14. Holt, Charles A, Jr, 1980. "Competitive Bidding for Contracts under Alternative Auction Procedures," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 433-445, June.
  15. Maskin, Eric S & Riley, John G, 1984. "Optimal Auctions with Risk Averse Buyers," Econometrica, Econometric Society, vol. 52(6), pages 1473-1518, November.
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