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Lowest Unique Bid Auctions with Signals

  • Andrea Gallice

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.

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Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 112.

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Length: 29 pages
Date of creation: May 2009
Date of revision: Sep 2009
Handle: RePEc:cca:wpaper:112
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  1. Unique bid auction in Wikipedia English ne '')
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