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Identification in auctions with selective entry

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  • Matthew Gentry

    () (Institute for Fiscal Studies and London School of Economics)

  • Tong Li

    () (Institute for Fiscal Studies and Vanderbilt University)

Abstract

This paper considers nonparametric identification of a two-stage entry and bidding model for auctions which we call the Affiliated-Signal (AS) model. This model assumes that potential bidders have private values, observe imperfect signals of their true values prior to entry, and choose whether to undertake a costly entry process. The AS model is a theoretically appealing candidate for the structural analysis of auctions with entry: it accommodates a wide range of entry processes, in particular nesting the Levin and Smith (1994) and Samuelson (1985) models as special cases. To date, however, the model's identification properties have not been well understood. We establish identifcation results for the general AS model, using variation in factors affecting entry behaviour (such as potential competition or entry costs) to construct identified bounds on model fundamentals. If available entry variation is continuous, the AS model may be point identified; otherwise, it will be partially identified. We derive constructive identification results in both cases, which can readily be refined to produce the sharp identified set. We also consider policy analysis in environments where only partial identifcation is possible, and derive identified bounds on expected seller revenue corresponding to a wide range of counterfactual policies while accounting for endogenous and arbitrarily selective entry. Finally we establish that our core results extend to environments with asymmetric bidders and nonseparable auction-level unobserved heterogeneity.

Suggested Citation

  • Matthew Gentry & Tong Li, 2012. "Identification in auctions with selective entry," CeMMAP working papers CWP38/12, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:cemmap:38/12
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    1. repec:cje:issued:v:50:y:2017:i:5:p:1445-1488 is not listed on IDEAS
    2. Vivek Bhattacharya & James W. Roberts & Andrew Sweeting, 2014. "Regulating bidder participation in auctions," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 675-704, December.
    3. Jun Honda, 2015. "Intermediary Search for Suppliers in Procurement Auctions," Department of Economics Working Papers wuwp203, Vienna University of Economics and Business, Department of Economics.
    4. Fang, Hanming & Tang, Xun, 2014. "Inference of bidders’ risk attitudes in ascending auctions with endogenous entry," Journal of Econometrics, Elsevier, vol. 180(2), pages 198-216.
    5. Sweeting, Andrew & Bhattacharya, Vivek, 2015. "Selective entry and auction design," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 189-207.
    6. Laurent Lamy & Philippe Jehiel, 2016. "On the benefits of set-asides," Post-Print hal-01688237, HAL.
    7. repec:wly:jmoncb:v:49:y:2017:i:1:p:115-169 is not listed on IDEAS
    8. repec:eee:gamebe:v:105:y:2017:i:c:p:104-111 is not listed on IDEAS
    9. repec:eee:forpol:v:80:y:2017:i:c:p:107-115 is not listed on IDEAS
    10. Andrew Chesher & Adam Rosen, 2015. "Identification of the distribution of valuations in an incomplete model of English auctions," CeMMAP working papers CWP30/15, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    11. Aryal, Gaurab & Gabrielli, Maria F., 2012. "Is Collusion Proof Auction Expensive? Estimates from Highway Procurements," MPRA Paper 57353, University Library of Munich, Germany, revised 19 Feb 2014.
    12. Naoki Wakamori & Angelika Welte, 2017. "Why Do Shoppers Use Cash? Evidence from Shopping Diary Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(1), pages 115-169, February.
    13. Tong Li & Jingfeng Lu & Li Zhao, 2015. "Auctions with selective entry and risk averse bidders: theory and evidence," RAND Journal of Economics, RAND Corporation, vol. 46(3), pages 524-545, September.
    14. Honda, Jun, 2015. "Intermediary Search for Suppliers in Procurement Auctions," Department of Economics Working Paper Series 4628, WU Vienna University of Economics and Business.
    15. Ari Hyytinen & Sofia Lundberg & Otto Toivanen, 2015. " Design of public procurement auctions: Evidence from cleaning contracts," Working Papers Department of Managerial Economics, Strategy and Innovation (MSI) 483670, KU Leuven, Faculty of Economics and Business, Department of Managerial Economics, Strategy and Innovation (MSI).
    16. Caleb Stroup & Matthew L. Gentry, 2017. "Entry and Competition in Takeover Auctions," Working Papers 17-01, Davidson College, Department of Economics.
    17. Victor Aguirregabiria & Margaret Slade, 2017. "Empirical models of firms and industries," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1445-1488, December.
    18. Ma, Jun & Marmer, Vadim & Shneyerov, Artyom, 2016. "Inference for First-Price Auctions with Guerre, Perrigne, and Vuong's estimator," Microeconomics.ca working papers vadim_marmer-2016-4, Vancouver School of Economics, revised 17 Mar 2018.

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