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Auctions with shill bidding

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  • Indranil Chakraborty

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  • Georgia Kosmopoulou

Abstract

Shill bidding has increased substantially in recent years since the technology employed to conduct on-line auctions enables many sellers to disguise their identities and bid. Although their intent is to gain by misleading the bidders on the value of the object, we show that in a common value auction sellers are worse off shill bidding. In fact, any out-of-auction mechanism that makes it difficult for them to shill bid increases their revenues. In addition, shill bidding reduces the surplus of the bidders and the surplus from trade. It is only the auctioneer who could gain from this activity and in that sense he may not have an incentive from within the auction to discourage shill bidding. Copyright Springer-Verlag Berlin/Heidelberg 2004

Suggested Citation

  • Indranil Chakraborty & Georgia Kosmopoulou, 2004. "Auctions with shill bidding," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(2), pages 271-287, August.
  • Handle: RePEc:spr:joecth:v:24:y:2004:i:2:p:271-287 DOI: 10.1007/s00199-003-0423-y
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Lamy, Laurent, 2009. "The Shill Bidding Effect versus the Linkage Principle," Journal of Economic Theory, Elsevier, vol. 144(1), pages 390-413, January.
    2. Bose, Subir & Daripa, Arup, 2017. "Shills and snipes," Games and Economic Behavior, Elsevier, pages 507-516.
    3. Takahiro Watanabe & Takehiko Yamato, 2008. "A choice of auction format in seller cheating: a signaling game analysis," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 36(1), pages 57-80, July.
    4. Lorentziadis, Panos L., 2016. "Optimal bidding in auctions from a game theory perspective," European Journal of Operational Research, Elsevier, vol. 248(2), pages 347-371.
    5. McAdams, David & Schwarz, Michael, 2007. "Who pays when auction rules are bent?," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1144-1157, October.
    6. Simon Grant & Atsushi Kajii & Flavio Menezes & Matthew J. Ryan, 2006. "Auctions with options to re-auction," International Journal of Economic Theory, The International Society for Economic Theory, pages 17-39.
    7. Dominic Herzog, 2014. "Shill Bidder's Behavior in a Second-Price Online Auction," Working papers 2014/03, Faculty of Business and Economics - University of Basel.
    8. Khoroshilov, Yuri & Dodonova, Anna, 2007. "Takeover auctions with actively participating targets," The Quarterly Review of Economics and Finance, Elsevier, vol. 47(2), pages 293-311, May.
    9. Leslie M. Marx & Robert C. Marshall, 2004. "Bidder Collusion," Econometric Society 2004 North American Winter Meetings 108, Econometric Society.
    10. Chen, Kong-Pin & Liu, Yu-Sheng & Yu, Ya-Ting, 2012. "The Seller's listing strategy in online auctions: evidence from eBay," MPRA Paper 38369, University Library of Munich, Germany.
    11. Kosmopoulou, Georgia & De Silva, Dakshina G., 2007. "The effect of shill bidding upon prices: Experimental evidence," International Journal of Industrial Organization, Elsevier, pages 291-313.
    12. Alex Nikitkov & Darlene Bay, 2008. "Online Auction Fraud: Ethical Perspective," Journal of Business Ethics, Springer, pages 235-244.
    13. Kevin Hasker & Robin Sickles, 2010. "eBay in the Economic Literature: Analysis of an Auction Marketplace," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 37(1), pages 3-42, August.
    14. Tim Hoppe & Abdolkarim Sadrieh, 2007. "An Experimental Assessment of Confederate Reserve Price Bids in Online Auction," FEMM Working Papers 07011, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    15. Axel Ockenfels & David Reiley & Abdolkarim Sadrieh, 2006. "Online Auctions," NBER Working Papers 12785, National Bureau of Economic Research, Inc.

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    Keywords

    Auction; Shill bidding; Seller participation;

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