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English Auctions with toeholds: An experimental study



We run experiments on English Auctions where the bidders already own a part (toehold) of the good for sale. The theory predicts a very strong effect of even small toeholds, however we find the effects are not so strong in the lab. We explain this by analyzing the flatness of the payoff functions, which leads to relatively costless deviations from the equilibrium strategies. We find that a levels of reasoning model explains the results better than the Nash equilibrium. Moreover, we find that although big toeholds can be effective, the cost to acquire them might be higher than the strategic benefit they bring. Finally our results show that in general the seller’s revenues fall when the playing field is uneven.

Suggested Citation

  • Sotiris Georganas & Rosemarie Nagel, 2008. "English Auctions with toeholds: An experimental study," Economics Working Papers 1102, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:1102

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    Cited by:

    1. Saral, Krista Jabs, 2012. "Speculation and demand reduction in English clock auctions with resale," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 416-431.
    2. Sotiris Georganas & Dan Levin & Peter McGee, 2017. "Optimistic irrationality and overbidding in private value auctions," Experimental Economics, Springer;Economic Science Association, vol. 20(4), pages 772-792, December.

    More about this item


    Experiments; toehold auction; takeover; payoff; flatness; quantal response; level-k; LeeX;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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