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

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  • Harry J. Paarsch
  • Jacques Robert

Abstract

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.

Suggested Citation

  • Harry J. Paarsch & Jacques Robert, 2003. "Testing Equilibrium Behaviour At First-Price, Sealed-Bid Auctions With Discrete Bid Increments," CIRANO Working Papers 2003s-32, CIRANO.
  • Handle: RePEc:cir:cirwor:2003s-32
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    File URL: http://www.cirano.qc.ca/files/publications/2003s-32.pdf
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    References listed on IDEAS

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    1. Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2000. "Optimal Nonparametric Estimation of First-Price Auctions," Econometrica, Econometric Society, vol. 68(3), pages 525-574, May.
    2. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-392, June.
    3. Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071.
    4. 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 403-426, May.
    5. Patrick Bajari & Ali Hortacsu, 2005. "Are Structural Estimates of Auction Models Reasonable? Evidence from Experimental Data," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 703-741, August.
    6. 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.
    7. Sandra Campo & Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2003. "Semiparametric Estimation of First-price Auctions with Risk Averse Bidders," Working Papers 2003-09, Center for Research in Economics and Statistics.
    8. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-333, March.
    9. 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.
    10. Susan Athey & Philip A. Haile, 2002. "Identification of Standard Auction Models," Econometrica, Econometric Society, vol. 70(6), pages 2107-2140, November.
    11. 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.
    12. Philip A. Haile & Elie Tamer, 2003. "Inference with an Incomplete Model of English Auctions," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 1-51, February.
    13. 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.
    14. Guerre, E. & Perrigne, I. & Vuong, Q., 1995. "Nonparametric Estimation of First-Price Auctions," Papers 9504, Southern California - Department of Economics.
    15. Battigalli, Pierpaolo & Siniscalchi, Marciano, 2003. "Rationalizable bidding in first-price auctions," Games and Economic Behavior, Elsevier, vol. 45(1), pages 38-72, October.
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    Cited by:

    1. Ignacio Esponda, 2008. "Information feedback in first price auctions," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 491-508.

    More about this item

    Keywords

    inference in auctions; discrete bidding; asymmetric auctions; inférence dans les enchères; mises à valeur discrètes; enchères asymétriques;

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