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Equilibrium Play in First Price Auctions: Revealed Preference Analysis

Author

Listed:
  • Laurens Cherchye
  • Thomas Demuynck
  • Bram De Rock
  • Mikhail Freer

Abstract

We provide a revealed preference characterization of equilibrium behavior in first price sealed bid auctions. This defines testable conditions for equilibrium play that are intrinsically nonparametric, meaning that they do not require a non-verifiable specification of the individual utility functions. We characterize equilibrium play for a sequence of observations on private values and bids for a given individual. In a first step, we assume that the distribution of bids in the population is fully known. In a second step, we relax this assumption and consider the more realistic case that the empirical analyst can only use a finite number of i.i.d. observations drawn from the population distribution. We demonstrate the empirical usefulness ofour conditions through an illustrative application to an existing experimental data set of Neugebauer and Perote 2008. This application also shows the potential of our nonparametric characterization to study the behavioral phenomena learning and fatigue at the individual level.

Suggested Citation

  • Laurens Cherchye & Thomas Demuynck & Bram De Rock & Mikhail Freer, 2018. "Equilibrium Play in First Price Auctions: Revealed Preference Analysis," Working Papers ECARES 2018-36, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:eca:wpaper:2013/279160
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    first price auctions; equilibrium play; revealed preference characterization; testable implications; experimental data.;
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