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Auctions and Leaks: A Theoretical and Experimental Investigation

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  • Fischer, Sven
  • Guth, Werner
  • Kaplan, Todd
  • Zultan, Roi

Abstract

We study first- and second-price private value auctions with sequential bidding where second movers may discover the first movers bids. There is a unique equilibrium in the first-price auction and multiple equilibria in the second-price auction. Consequently, comparative statics across price rules are equivocal. We experimentally find that in the first-price auction, leaks benefit second movers but harm first movers and sellers. Low to medium probabilities of leak eliminate the usual revenue dominance of first-price over second-price auctions. With a high probability of a leak, second-price auctions generate higher revenue.

Suggested Citation

  • Fischer, Sven & Guth, Werner & Kaplan, Todd & Zultan, Roi, 2014. "Auctions and Leaks: A Theoretical and Experimental Investigation," MPRA Paper 58940, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:58940
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    References listed on IDEAS

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    1. Lengwiler, Yvan & Wolfstetter, Elmar, 2010. "Auctions and corruption: An analysis of bid rigging by a corrupt auctioneer," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 1872-1892, October.
    2. Jeremy Bulow & Paul Klemperer, 2009. "Why Do Sellers (Usually) Prefer Auctions?," American Economic Review, American Economic Association, vol. 99(4), pages 1544-75, September.
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    Cited by:

    1. Cohensius Gal & Segev Ella, 2018. "Sequential Bidding in Asymmetric First Price Auctions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 18(1), pages 1-21, January.
    2. Aniol Llorente-Saguer & Ro’i Zultan, 2014. "Auction Mechanisms And Bidder Collusion: Bribes, Signals And Selection," Working Papers 1406, Ben-Gurion University of the Negev, Department of Economics.
    3. Pacharasut Sujarittanonta & Ajalavat Viriyavipart, 2021. "Deterring collusion with a reserve price: an auction experiment," Experimental Economics, Springer;Economic Science Association, vol. 24(2), pages 536-557, June.
    4. Mill, Wladislaw & Morgan, John, 2022. "Competition between friends and foes," European Economic Review, Elsevier, vol. 147(C).

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    Keywords

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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