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Investment Incentives in Auctions: An Experiment

Author

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  • Veronika Grimm
  • Friederike Mengel
  • Giovanni Ponti
  • Lari Arthur Viianto

Abstract

We experimentally analyze first and second price auctions where one bidder can achieve a comparative advantage by investment prior to the auction. We find that, as predicted by theory, bidders invest more often prior to second price auctions than prior to first price auctions. In both auction formats bidding is more aggressive than the equilibrium prediction. However, bidding is closer to equilibrium than in control treatments where the comparative advantage is exogenous.

Suggested Citation

  • Veronika Grimm & Friederike Mengel & Giovanni Ponti & Lari Arthur Viianto, 2006. "Investment Incentives in Auctions: An Experiment," Working Paper Series in Economics 26, University of Cologne, Department of Economics.
    • Handle: RePEc:kls:series:0026
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    References listed on IDEAS

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    More about this item

    Keywords

    Auctions; Investment Incentives; Asymmetric Auctions; Experimental Economics;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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