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Auctions with endogenous participation and an uncertain number of bidders: experimental evidence

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  • Diego Aycinena

    (Universidad del Rodario)

  • Lucas Rentschler

    (Utah State University)

Abstract

Attracting bidders to an auction is a key factor in determining revenue. We experimentally investigate entry and bidding behavior in first-price and English clock auctions to determine the revenue implications of entry. Potential bidders observe their value and then decide whether or not to incur a cost to enter. We also vary whether or not bidders are informed regarding the number of entrants prior to placing their bids. Revenue equivalence is predicted in all four environments. We find that, regardless of whether or not bidders are informed, first-price auctions generate more revenue than English clock auctions. Within a given auction format, the effect of informing bidders differs. In first-price auctions, revenue is higher when bidders are informed, while the opposite is true in English clock auctions. The optimal choice for an auction designer who wishes to maximize revenue is a first-price auction with uninformed bidders.

Suggested Citation

  • Diego Aycinena & Lucas Rentschler, 2018. "Auctions with endogenous participation and an uncertain number of bidders: experimental evidence," Experimental Economics, Springer;Economic Science Association, vol. 21(4), pages 924-949, December.
  • Handle: RePEc:kap:expeco:v:21:y:2018:i:4:d:10.1007_s10683-017-9558-8
    DOI: 10.1007/s10683-017-9558-8
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    1. Luke Boosey & Philip Brookins & Dmitry Ryvkin, 2020. "Entry in group contests," Working Papers wp2020_02_01, Department of Economics, Florida State University.
    2. Yunmi Kong, 2020. "Not knowing the competition: evidence and implications for auction design," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 840-867, September.
    3. Diego Aycinena & Hernán Bejarano & Lucas Rentschler, 2018. "Informed entry in auctions," International Journal of Game Theory, Springer;Game Theory Society, vol. 47(1), pages 175-205, March.
    4. Luke Boosey & Philip Brookins & Dmitry Ryvkin, 2020. "Information Disclosure in Contests with Endogenous Entry: An Experiment," Management Science, INFORMS, vol. 66(11), pages 5128-5150, November.
    5. Aycinena, Diego & Rentschler, Lucas, 2019. "Entry in contests with incomplete information: Theory and experiments," European Journal of Political Economy, Elsevier, vol. 60(C).

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