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Inference with an incomplete model of English auctions

Listed author(s):
  • Haile,P.A.
  • Tamer,E.T.

    (University of Wisconsin-Madison, Social Systems Research Institute)

While English auctions are the most common in practice, their rules typically lack sufficient structure to yield a tractable theoretical model without significant abstractions. Rather than relying on one stylized model to provide an exact interpretation of the data, we explore an incomplete model based on two simple assumptions: bidders neither bid more than their valuations nor let an opponent win at a price they would be willing to beat. Focusing on the symmetric independent private values paradigm, we show that this limited structure enables construction of informative bounds on the distribution function characterizing bidder demand, on the optimal reserve price, and on the effects of observable covariates on bidder valuations. If the standard theoretical model happens to be the true model, our bounds collapse to the true features of interest. In contrast, when the true data†generating process deviates in seemingly small ways from that implied by equilibrium in the standard theoretical model, existing methods can yield misleading results that need not even lie within our bounds. We report results from Monte Carlo experiments illustrating the performance of our approach and comparing it to others. We apply our approach to U.S. Forest Service timber auctions to evaluate reserve price policy.

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File URL: http://www.ssc.wisc.edu/~phaile/eabounds.pdf
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Paper provided by Wisconsin Madison - Social Systems in its series Working papers with number 18.

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Date of creation: 2000
Handle: RePEc:att:wimass:200018
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UNIVERSITY OF WISCONSIN MADISON, SOCIAL SYSTEMS RESEARCH INSTITUTE(S.S.R.I.), MADISON WISCONSIN 53706 U.S.A.

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  1. Marshall, R.C. & Richard J.F., 1995. "Bider Collusion at Forest Service Timber Sales," Papers 7-95-3, Pennsylvania State - Department of Economics.
  2. Paarsch, Harry J., 1992. "Deciding between the common and private value paradigms in empirical models of auctions," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 191-215.
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  4. Klemperer, Paul, 1999. " Auction Theory: A Guide to the Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 13(3), pages 227-286, July.
  5. Laffont, J.J., 1996. "Game Theory and Empirical Economics: The Case of Auction Data," Papers 95.394, Toulouse - GREMAQ.
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  11. Zvika Neeman, 1998. "The Effectiveness of Simple Auctions," Papers 0095, Boston University - Industry Studies Programme.
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