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Testing Equilibrium Behaviour At First-Price, Sealed-Bid Auctions With Discrete Bid Increments

  • Harry J. Paarsch
  • Jacques Robert

Within the independent private-values paradigm, we derive the equilibrium implications of purposeful bidding behaviour at single-unit, first-price, sealed-bid auctions when discrete increments are imposed on bidding. While equilibrium purposeful behaviour with discrete bid increments is different from that which would obtain were continuous variation in bids permitted, these differences typically disappear as the bid increments go to zero. But discrete bid increments are a common feature at many real-world auctions. Moreover, their presence can simplify computation when estimating and testing auction models. Our approach fits within a model of incomplete inference and allows us to test sequentially for symmetric, equilibrium purposeful behaviour as well as asymmetric, equilibrium purposeful behaviour. We demonstrate the utility of the approach by applying it to data from laboratory experiments. Dans le cadre du modèle d'enchères à valeurs privées et indépendantes, nous dérivons les implications empiriques du comportement d'équilibre dans les enchères à enveloppe scellée au premier prix, lorsque les incréments sont discrets. Bien que les comportements d'équilibre diffèrent lorsque les mises prennent des valeurs discrètes plutôt que continues, ces différences disparaissent typiquement comme les incréments tendent vers zéro. En pratique, les mises dans les enchères prennent des valeurs discrètes. De plus, ceci peut simplifier les calculs nécessaires pour estimer et tester les modèles d'enchères. Notre approche s'insère dans le cadre d'un modèle d'inférence incomplet et nous permet de tester si les données sont cohérentes avec un comportement d'équilibre dans le cadre d'un modèle symétrique aussi bien qu'asymétrique. Nous démontrons l'utilité de l'approche en l'appliquant à des données générées à partir d'expériences en laboratoire.

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Paper provided by CIRANO in its series CIRANO Working Papers with number 2003s-32.

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Length: 31 pages
Date of creation: 01 Jun 2003
Date of revision:
Handle: RePEc:cir:cirwor:2003s-32
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  1. Dekel, Eddie & Wolinsky, Asher, 2003. "Rationalizable outcomes of large private-value first-price discrete auctions," Games and Economic Behavior, Elsevier, vol. 43(2), pages 175-188, May.
  2. Kenneth Hendricks & Harry J. Paarsch, 1995. "A Survey of Recent Empirical Work Concerning Auctions," Canadian Journal of Economics, Canadian Economics Association, vol. 28(2), pages 403-26, May.
  3. Paarsch, Harry J., 1997. "Deriving an estimate of the optimal reserve price: An application to British Columbian timber sales," Journal of Econometrics, Elsevier, vol. 78(2), pages 333-357, June.
  4. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-92, June.
  5. Philip Haile, 2000. "Inference with an Incomplete Model of English Auctions," Econometric Society World Congress 2000 Contributed Papers 1546, Econometric Society.
  6. Susan Athey & Philip A. Haile, 2002. "Identification of Standard Auction Models," Econometrica, Econometric Society, vol. 70(6), pages 2107-2140, November.
  7. Horowitz, Joel L & Manski, Charles F, 1995. "Identification and Robustness with Contaminated and Corrupted Data," Econometrica, Econometric Society, vol. 63(2), pages 281-302, March.
  8. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-33, March.
  9. Eddie Dekel & Asher Wolinsky, 2000. "Rationalizable Outcomes of Large Independent Private-Value First Price Discrete Auctions," Discussion Papers 1308, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Guerre, E. & Perrigne, I. & Vuong, Q., 1995. "Nonparametric Estimation of First-Price Auctions," Papers 9504, Southern California - Department of Economics.
  11. Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2000. "Optimal Nonparametric Estimation of First-Price Auctions," Econometrica, Econometric Society, vol. 68(3), pages 525-574, May.
  12. Patrick Bajari & Ali Hortacsu, 2003. "Are Structural Estimates of Auction Models Reasonable? Evidence from Experimental Data," NBER Working Papers 9889, National Bureau of Economic Research, Inc.
  13. Battigalli, Pierpaolo & Siniscalchi, Marciano, 2003. "Rationalizable bidding in first-price auctions," Games and Economic Behavior, Elsevier, vol. 45(1), pages 38-72, October.
  14. Sandra Campo & Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2003. "Semiparametric Estimation of First-price Auctions with Risk Averse Bidders," Working Papers 2003-09, Centre de Recherche en Economie et Statistique.
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