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Lowest Unique Bid Auctions

Author

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  • Marco Scarsini
  • Eilon Solan
  • Nicolas Vieille

Abstract

We consider a class of auctions (Lowest Unique Bid Auctions) that have achieved a considerable success on the Internet. Bids are made in cents (of euro) and every bidder can bid as many numbers as she wants. The lowest unique bid wins the auction. Every bid has a fixed cost, and once a participant makes a bid, she gets to know whether her bid was unique and whether it was the lowest unique. Information is updated in real time, but every bidder sees only what's relevant to the bids she made. We show that the observed behavior in these auctions differs considerably from what theory would prescribe if all bidders were fully rational. We show that the seller makes money, which would not be the case with rational bidders, and some bidders win the auctions quite often. We describe a possible strategy for these bidders.

Suggested Citation

  • Marco Scarsini & Eilon Solan & Nicolas Vieille, 2010. "Lowest Unique Bid Auctions," Papers 1007.4264, arXiv.org.
  • Handle: RePEc:arx:papers:1007.4264
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    File URL: http://arxiv.org/pdf/1007.4264
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    References listed on IDEAS

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    5. Milgrom,Paul, 2004. "Putting Auction Theory to Work," Cambridge Books, Cambridge University Press, number 9780521536721, April.
    6. Amnon Rapoport & Hironori Otsubo & Bora Kim & William E. Stein, 2009. "Unique Bid Auction Games," Jena Economic Research Papers 2009-005, Friedrich-Schiller-University Jena.
    7. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
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    Cited by:

    1. Costa-Gomes, Miguel A. & Shimoji, Makoto, 2014. "Theoretical approaches to lowest unique bid auctions," Journal of Mathematical Economics, Elsevier, vol. 52(C), pages 16-24.
    2. Eichberger, Jürgen & Vinogradov, Dmitri, 2016. "Efficiency of Lowest-Unmatched Price Auctions," Economics Letters, Elsevier, vol. 141(C), pages 98-102.
    3. Mohlin, Erik & Östling, Robert & Wang, Joseph Tao-yi, 2015. "Lowest unique bid auctions with population uncertainty," Economics Letters, Elsevier, vol. 134(C), pages 53-57.

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