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Bid and price effects of increased competition in the first-price auction: experimental evidence

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  • Tibor Neugebauer

    (Luxembourg School of Finance, University of Luxembourg)

Abstract

The paper reports experimental data on the behavior in the first-price sealed-bid auction for a varying number of market participants when values and bids are private information. In line with the theory, the data show that the price and the bid-value ratio increase with the number of participants. Indeed the increase of bids in market size is not as steep as predicted by the risk neutral Nash equilibrium. Consequently, bids are more likely to be above [below] the equilibrium for small [big] market size and at equilibrium for some market size. The relationship between market size and average bids or prices is captured by an increasing bidding function which allows an estimate for greater market sizes. The behavioral pattern of prices is slightly different; the observed price increase due to an increase in market size does quite closely match the predicted one. It is argued that the heterogeneity of bidding behavior leads to higher prices than would be expected under symmetric bidding.

Suggested Citation

  • Tibor Neugebauer, 2007. "Bid and price effects of increased competition in the first-price auction: experimental evidence," LSF Research Working Paper Series 07-17, Luxembourg School of Finance, University of Luxembourg.
    • Handle: RePEc:crf:wpaper:07-17
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    References listed on IDEAS

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    Cited by:

    1. Sascha Fullbrunn & Tibor Neugebauer, 2009. "Anonymity deters collusion in hard-close auctions: experimental evidence," New Zealand Economic Papers, Taylor & Francis Journals, vol. 43(2), pages 131-148.
    2. Sascha Füllbrunn & Tibor Neugebauer, 2013. "Varying the number of bidders in the first-price sealed-bid auction: experimental evidence for the one-shot game," Theory and Decision, Springer, vol. 75(3), pages 421-447, September.
    3. Noe, Thomas H. & Rebello, Michael & Wang, Jun, 2012. "Learning to bid: The design of auctions under uncertainty and adaptation," Games and Economic Behavior, Elsevier, vol. 74(2), pages 620-636.

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    More about this item

    Keywords

    First-price auctions; experiment.;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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