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Lowest Unique Bid Auctions with Signals

Author

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  • Andrea Gallice

Abstract

A lowest unique bid auction allocates a good to the agent who submits the lowest bid that is not matched by any other bid. This peculiar auction format is becoming increasingly popular over the Internet. We show that when all the bidders are rational such a selling mechanism can lead to positive profits only if there is a large mismatch between the auctioneer's and the bidders' valuation. On the contrary, the auction becomes highly lucrative if at least some bidders are myopic. In this second case, we analyze the key role played by the existence of some private signals that the seller sends to the bidders about the status of their bids. Data about actual auctions confirm the profitability of the mechanism and the limited rationality of the bidders.

Suggested Citation

  • Andrea Gallice, 2009. "Lowest Unique Bid Auctions with Signals," Carlo Alberto Notebooks 112, Collegio Carlo Alberto, revised Sep 2009.
  • Handle: RePEc:cca:wpaper:112
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    File URL: http://www.carloalberto.org/assets/working-papers/no.112.pdf
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    Citations

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    Cited by:

    1. Gallice Andrea, 2016. "Price Reveal Auctions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 16(2), pages 485-514, June.
    2. Yamada, Takashi & Hanaki, Nobuyuki, 2016. "An experiment on Lowest Unique Integer Games," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 463(C), pages 88-102.
    3. Marco Scarsini & Eilon Solan & Nicolas Vieille, 2010. "Lowest Unique Bid Auctions," Papers 1007.4264, arXiv.org.
    4. Robert Östling & Joseph Tao-yi Wang & Eileen Y. Chou & Colin F. Camerer, 2011. "Testing Game Theory in the Field: Swedish LUPI Lottery Games," American Economic Journal: Microeconomics, American Economic Association, vol. 3(3), pages 1-33, August.
    5. Baethge, Caroline & Fiedler, Marina & Haruvey, Ernan, 2016. "In it to win it: Experimental evidence on unique bid auctions," Passauer Diskussionspapiere, Betriebswirtschaftliche Reihe B-20-16, University of Passau, Faculty of Business and Economics.
    6. Andrea Gallice & Giuseppe Sorrenti, 2015. "Curious about the price? Consumers' behavior in price reveal auctions," Carlo Alberto Notebooks 432, Collegio Carlo Alberto.
    7. Nadir Altinok & Abdurrahman Aydemir, 2015. "The Unfolding of Gender Gap in Education," Working Papers 934, Economic Research Forum, revised Aug 2015.
    8. Takashi Yamada & Nobuyuki Hanaki, 2016. "An Experiment on Lowest Unique Integer Games," Post-Print halshs-01204814, HAL.
    9. Andrea Gallice, 2010. "Price Reveal Auctions on the Internet," Carlo Alberto Notebooks 147, Collegio Carlo Alberto.

    More about this item

    Keywords

    Lowest unique bid auctions; Signals; Bounded rationality.;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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    1. Wikipedia:Reference desk/Archives/Mathematics/2010 January 29 in Wikipedia English ne '')
    2. Unique bid auction in Wikipedia English ne '')

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