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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
    1. Andrés Carvajal & Rahul Deb & James Fenske & John K.‐H. Quah, 2013. "Revealed Preference Tests of the Cournot Model," Econometrica, Econometric Society, vol. 81(6), pages 2351-2379, November.
    2. Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2000. "Optimal Nonparametric Estimation of First-Price Auctions," Econometrica, Econometric Society, vol. 68(3), pages 525-574, May.
    3. Ockenfels, Axel & Selten, Reinhard, 2005. "Impulse balance equilibrium and feedback in first price auctions," Games and Economic Behavior, Elsevier, vol. 51(1), pages 155-170, April.
    4. John H. Kagel & Alvin E. Roth, 2016. "The Handbook of Experimental Economics, Volume 2," Economics Books, Princeton University Press, edition 1, volume 2, number 10874.
    5. Laurens Cherchye & Thomas Demuynck & Bram De Rock & Frederic Vermeulen, 2017. "Household Consumption When the Marriage Is Stable," American Economic Review, American Economic Association, vol. 107(6), pages 1507-1534, June.
    6. Sepanski, S. J., 1994. "Asymptotics for Multivariate t-Statistic and Hotelling's T2-Statistic Under Infinite Second Moments via Bootstrapping," Journal of Multivariate Analysis, Elsevier, vol. 49(1), pages 41-54, April.
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    8. Vincent P. Crawford & Nagore Iriberri, 2007. "Level-k Auctions: Can a Nonequilibrium Model of Strategic Thinking Explain the Winner's Curse and Overbidding in Private-Value Auctions?," Econometrica, Econometric Society, vol. 75(6), pages 1721-1770, November.
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    10. Federico Echenique & Sangmok Lee & Matthew Shum & M. Bumin Yenmez, 2013. "The Revealed Preference Theory of Stable and Extremal Stable Matchings," Econometrica, Econometric Society, vol. 81(1), pages 153-171, January.
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    16. Chen, Kay-Yut & Plott, Charles R., 1998. "Nonlinear Behavior in Sealed Bid First Price Auctions," Games and Economic Behavior, Elsevier, vol. 25(1), pages 34-78, October.
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    Keywords

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

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