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Demand reduction in a multi-unit auctions with varying numbers of bidders: Theory and evidence from a field experiment

  • David Reiley
  • John List
  • Richard Engelbrecht-Wiggans

Auction theory has recently revealed that multi-unit uniform-price auctions, such as those used by the U.S. Treasury for debt sales, entail demand-reduction incentives that can cause inefficient allocations. Recent experimental results show that bidders do indeed strategically reduce their bids in uniform-price auctions. The present paper extends this work, both theoretically and experimentally, to consider the effects of varying numbers of bidders. We derive several theoretical predictions, including the result that demand reduction should decrease with increasing numbers of bidders, though some demand reduction remains even in the asymptotic limit. We then examine the bidding behavior of subjects in this environment by auctioning dozens of Cal Ripken, Jr. baseball cards using both uniform-price and Vickrey auction formats. The field data are broadly consistent with the theoretical predictions of our model: most notably, demand reduction on second-unit bids becomes much smaller and harder to detect as the number of bidders increases.

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Paper provided by The Field Experiments Website in its series Framed Field Experiments with number 00147.

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Date of creation: 2004
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Handle: RePEc:feb:framed:00147
Contact details of provider: Web page: http://www.fieldexperiments.com

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  1. Engelbrecht-Wiggans, Richard, 1999. "An example of multi-unit auctions with atypically many equilibria," Economics Letters, Elsevier, vol. 65(1), pages 67-69, October.
  2. Jason Shogren & John List, 1998. "Calibration of the difference between actual and hypothetical valuations in a field experiment," Natural Field Experiments 00296, The Field Experiments Website.
  3. John McMillan, 1994. "Selling Spectrum Rights," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 145-162, Summer.
  4. Christie, Andrew A., 1990. "Aggregation of test statistics : An evaluation of the evidence on contracting and size hypotheses," Journal of Accounting and Economics, Elsevier, vol. 12(1-3), pages 15-36, January.
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