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Creating a Winner's Curse via Jump Bids

Author

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  • David Ettinger
  • Fabio Michelucci

Abstract

We show that jump bids can be used by a bidder to create a winner's curse and preserve an informational advantage that would otherwise disappear in the course of an open ascending auction. The e ect of the winner's curse is to create allocative distortions and reduce the seller's expected revenue. Two novel features of equilibrium jump bids are also derived. First, the jump bid may partially reveal the value of the signal that the jump bid intends to hide. Second, the probability of calling a price might decrease with the type of the bidder who places the jump bid.

Suggested Citation

  • David Ettinger & Fabio Michelucci, 2015. "Creating a Winner's Curse via Jump Bids," CERGE-EI Working Papers wp537, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp537
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    File URL: http://www.cerge-ei.cz/pdf/wp/Wp537.pdf
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    References listed on IDEAS

    as
    1. Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," American Economic Review, American Economic Association, vol. 99(4), pages 1544-75, September.
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    Cited by:

    1. Delnoij, Joyce & Rezaei, Sarah & Rijt, Arnout van de, 2023. "Jump bidding does not reduce prices: Field-experimental evidence from online auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 209(C), pages 308-325.
    2. Gonçalves, Ricardo & Ray, Indrajit, 2017. "Partition Equilibria in a Japanese-English Auction with Discrete Bid Levels for the Wallet Game," CRETA Online Discussion Paper Series 34, Centre for Research in Economic Theory and its Applications CRETA.

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    More about this item

    Keywords

    auctions; efficiency; jump bids; winner'scurse;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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