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Comparative study of one-bid versus two-bid auctions

  • Ivanova-Stenzel, Radosveta
  • Sonsino, Doron
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    We compare the standard one-bid first price auction to a corresponding two-bid first price auction where each buyer may place two bids: a high bid and a low one and the winner pays his low bid if this was higher than all other bids. We characterize the equilibria of the two mechanisms and prove some results on the ranking of revenues and expected utilities across the two mechanisms for the symmetric case. We show that subjects in a computerized experiment prefer the two-bid auction over the one-bid auction when given the possibility of choosing among the two and we claim that this and other aspects of subjects' behavior conform to the equilibrium predictions for risk-averse subjects. We also report some discrepancies between the experimental results and the equilibrium predictions and provide some alternative explanations to the observed behavior.

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    Paper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 2001,69.

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    Date of creation: 2001
    Date of revision:
    Handle: RePEc:zbw:sfb373:200169
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    1. Holt, Charles A, Jr, 1980. "Competitive Bidding for Contracts under Alternative Auction Procedures," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 433-45, June.
    2. Coppinger, Vicki M & Smith, Vernon L & Titus, Jon A, 1980. "Incentives and Behavior in English, Dutch and Sealed-Bid Auctions," Economic Inquiry, Western Economic Association International, vol. 18(1), pages 1-22, January.
    3. Cox, James C & Smith, Vernon L & Walker, James M, 1988. " Theory and Individual Behavior of First-Price Auctions," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 61-99, March.
    4. Güth, Werner & Ivanova-Stenzel, Radosveta & Wolfstetter, Elmar, 2001. "Bidding behavior in asymmetric auctions: An experimental study," SFB 373 Discussion Papers 2001,15, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    5. Tversky, Amos & Kahneman, Daniel, 1986. "Rational Choice and the Framing of Decisions," The Journal of Business, University of Chicago Press, vol. 59(4), pages S251-78, October.
    6. Conlisk, John, 1993. " The Utility of Gambling," Journal of Risk and Uncertainty, Springer, vol. 6(3), pages 255-75, June.
    7. Harrison, Glenn W, 1989. "Theory and Misbehavior of First-Price Auctions," American Economic Review, American Economic Association, vol. 79(4), pages 749-62, September.
    8. Pezanis-Christou, P, 1997. "On the Impact of Low-Balling : Experimental Results in Asymmetric Auctions," Papers 97/05, New South Wales - School of Economics.
    9. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
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