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The Loser’s Bliss in Auctions with Price Externality

Author

Listed:
  • Ernan Haruvy

    (Jindal School of Management, The University of Texas at Dallas, SM 32, 800 West Campbell Road, Richardson, TX 75080, USA)

  • Peter T. L. Popkowski Leszczyc

    (School of Business, University of Alberta, Edmonton, AB T6G-2R6, Canada)

Abstract

We consider auctions with price externality where all bidders derive utility from the winning price, such as charity auctions. In addition to the benefit to the winning bidder, all bidders obtain a benefit that is increasing in the winning price. Theory makes two predictions in such settings: First, individual bids will be increasing in the multiplier on the winning price. Second, individual bids will not depend on the number of other bidders. Empirically, we find no evidence that increasing the multiplier increases individual bids in a systematic way, but we find that increasing the number of bidders does. An analysis of individual bidding functions reveals that bidders underweight the incentives to win and overweight the incentives to lose.

Suggested Citation

  • Ernan Haruvy & Peter T. L. Popkowski Leszczyc, 2015. "The Loser’s Bliss in Auctions with Price Externality," Games, MDPI, vol. 6(3), pages 1-23, July.
    • Handle: RePEc:gam:jgames:v:6:y:2015:i:3:p:191-213:d:52077
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