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Pay-to-Bid Auctions

  • Brennan C. Platt
  • Joseph Price
  • Henry Tappen

We analyze a new auction format in which bidders pay a fee each time they increase the auction price. Bidding fees are the primary source of revenue for the seller, but produce the same expected revenue as standard auctions. Our model predicts a particular distribution of ending prices, which we test against observed auction data. Our model fits the data well for over three-fourths of routinely auctioned items. The notable exceptions are video game paraphernalia, which show more aggressive bidding and higher expected revenue. By incorporating mild risk-loving preferences in the model, we explain nearly all of the auctions.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15695.

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Date of creation: Jan 2010
Date of revision:
Publication status: published as The Role of Risk Preferences in Pay-to-Bid Auctions Autores: Brennan C. Platt, Joseph Price, Henry Tappen Localización: Management science: journal of the Institute for operations research and the management sciences, ISSN 0025-1909, Vol. 59, Nº. 9, 2013, págs. 2117-2134
Handle: RePEc:nbr:nberwo:15695
Note: TWP
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  1. Kai A. Konrad & Wolfgang Leininger, 2005. "The generalized Stackelberg equilibrium of the all-pay auction with complete information," Discussion Papers in Economics 05_07, University of Dortmund, Department of Economics.
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  15. Gavious, Arieh & Moldovanu, Benny & Sela, Aner, 2000. "Bid Costs and Endogenous Bid Caps," Sonderforschungsbereich 504 Publications 01-19, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
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