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Estimating First-Price Auctions with an Unknown Number of Bidders: A Misclassification Approach

  • Yingyao Hu
  • Matthew Shum

In this paper, we consider nonparametric identification and estimation of first-price auction models when N*, the number of potential bidders, is unknown to the researcher, but observed by bidders. Exploiting results from the recent econometric literature on models with misclassification error, we develop a nonparametric procedure for recovering the distribution of bids conditional on the unknown N*. Monte Carlo results illustrate that the procedure works well in practice. We present illustrative evidence from a dataset of procurement auctions, which shows that accounting for the unobservability of N* can lead to economically meaningful differences in the estimates of bidders' profit margins.

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Paper provided by The Johns Hopkins University,Department of Economics in its series Economics Working Paper Archive with number 541.

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Date of creation: Dec 2007
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Handle: RePEc:jhu:papers:541
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  8. Tong Li, 2005. "Econometrics of first-price auctions with entry and binding reservation prices," Journal of Econometrics, Elsevier, vol. 126(1), pages 173-200, May.
  9. Jonathan Levin & Susan Athey & Enrique Seira, 2004. "Comparing Open and Sealed Bid Auctions: Theory and Evidence from Timber Auctions," Working Papers 2004.142, Fondazione Eni Enrico Mattei.
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  11. Matt Shum & Phil Haile & Han Hong, 2003. "Nonparametric Tests for Common Values in First-Price Auctions," Economics Working Paper Archive 501, The Johns Hopkins University,Department of Economics.
  12. Harry J. Paarsch & Han Hong, 2006. "An Introduction to the Structural Econometrics of Auction Data," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262162350, December.
  13. van den Berg, Gerard J & van der Klaauw, Bas, 2007. "If Winning Isn't Everything, Why Do They Keep Score? A Structural Empirical Analysis of Dutch Flower Auctions," CEPR Discussion Papers 6323, C.E.P.R. Discussion Papers.
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  17. Laffont, Jean-Jacques & Ossard, Herve & Vuong, Quang, 1995. "Econometrics of First-Price Auctions," Econometrica, Econometric Society, vol. 63(4), pages 953-80, July.
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  19. Marmer, Vadim & Shneyerov, Artyom & Xu, Pai, 2013. "What model for entry in first-price auctions? A nonparametric approach," Journal of Econometrics, Elsevier, vol. 176(1), pages 46-58.
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  21. Paarsch, Harry J., 1997. "Deriving an estimate of the optimal reserve price: An application to British Columbian timber sales," Journal of Econometrics, Elsevier, vol. 78(2), pages 333-357, June.
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  23. Delaigle, A. & Gijbels, I., 2006. "Data-driven boundary estimation in deconvolution problems," Computational Statistics & Data Analysis, Elsevier, vol. 50(8), pages 1965-1994, April.
  24. Emmanuel Guerre & Isabelle Perrigne & Quang Vuong, 2000. "Optimal Nonparametric Estimation of First-Price Auctions," Econometrica, Econometric Society, vol. 68(3), pages 525-574, May.
  25. Donald, Stephen G & Paarsch, Harry J, 1993. "Piecewise Pseudo-maximum Likelihood Estimation in Empirical Models of Auctions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 121-48, February.
  26. Han Hong & Matthew Shum, 2001. "Increasing Competition and the Winner's Curse: Evidence from Procurement," Economics Working Paper Archive 447, The Johns Hopkins University,Department of Economics.
  27. Samuelson, William F., 1985. "Competitive bidding with entry costs," Economics Letters, Elsevier, vol. 17(1-2), pages 53-57.
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