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Common Value Auctions with Default: An Experimental Approach

  • Matthew Roelofs


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    This paper examines a common value auction in which bidder default is explicitly allowed. The lack of contractual enforcement has implications for the formation of bids as well as the revenue properties of the auction. Using a common value procurement auction, we explore these implications in an experimental setting. Our results show that bidders are more aggressive when default is allowed. A theoretical result shows that allowing default can actually be in the best interest of the auctioneer. Experimental evidence, however, indicates that this result does not hold true in practice. One possible reason for this discrepancy is that the data in our experiments is consistent with winner's curse behavior. Copyright Kluwer Academic Publishers 2002

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    Article provided by Springer in its journal Experimental Economics.

    Volume (Year): 5 (2002)
    Issue (Month): 3 (December)
    Pages: 233-252

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    Handle: RePEc:kap:expeco:v:5:y:2002:i:3:p:233-252
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    1. Hansen, Robert G & Lott, John R, Jr, 1991. "The Winner's Curse and Public Information in Common Value Auctions: Comment," American Economic Review, American Economic Association, vol. 81(1), pages 347-61, March.
    2. Waehrer Keith, 1995. "A Model of Auction Contracts with Liquidated Damages," Journal of Economic Theory, Elsevier, vol. 67(2), pages 531-555, December.
    3. John H. Kagel & Colin M. Campbell & Dan Levin, 1999. "The Winner's Curse and Public Information in Common Value Auctions: Reply," American Economic Review, American Economic Association, vol. 89(1), pages 325-334, March.
    4. Zheng, Charles Zhoucheng, 2001. "High Bids and Broke Winners," Staff General Research Papers 12665, Iowa State University, Department of Economics.
    5. Thomas VON UNGERN-STERNBERG, 1990. "Swiss Auctions," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9001, Université de Lausanne, Faculté des HEC, DEEP.
      • von Ungern-Sternberg, Thomas, 1991. "Swiss Auctions," Economica, London School of Economics and Political Science, vol. 58(231), pages 341-57, August.
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