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Multi-unit common value auctions: theory and experiments
Örebro University, Orebro University School of Business, Örebro University, Sweden.
2012 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

Research on auctions that involve more than one identical item for sale was,almost non-existing in the 90’s, but has since then been getting increasing attention. External incentives for this research have come from the US spectrum, sales, the European 3G mobile-phone auctions,  and Internet auctions. The policy relevance and the huge amount of money involved in many of them have helped the theory and experimental research advance. But in auctions where values are equal across bidders, common value auctions, that is, when the value depends on some outside parameter, equal to all bidders, the research is still embryonic.

This thesis contributes to the topic with three studies. The first uses a Bayesian game to model a simple multi-unit common value auction, the task being to compare equilibrium strategies and the seller’s revenue from three auction formats; the discriminatory, the uniform and the Vickrey auction. The second study conducts an economic laboratory experiment on basis of the first study. The third study comprises an experiment on the multi-unit common value uniform auction and compares the dynamic and the static environments of this format.

The most salient result in both experiments is that subjects overbid. They are victims of the winner’s curse and bid above the expected value, thus earning a negative profit. There is some learning, but most bidders continue to earn a negative profit also in later rounds. The competitive effect when participating in an auction seems to be stronger than the rationality concerns. In the first experiment, subjects in the Vickrey auction do somewhat better in small groups than subjects in the other auction types and, in the second experiment, subjects in the dynamic auction format perform much better than subjects in the static auction format; but still, they overbid.

Due to this overbidding, the theoretical (but not the behavioral) prediction that the dynamic auction should render more revenue than the static fails inthe second experiment. Nonetheless, the higher revenue of the static auction comes at a cost; half of the auctions yield negative profits to the bidders, and the winner’s curse is more severely widespread in this format. Besides, only a minority of the bidders use the equilibrium bidding strategy.The bottom line is that the choice between the open and sealed-bid formats may be more important than the choice of price mechanism, especially in common value settings.

Place, publisher, year, edition, pages
Örebro: Örebro university , 2012. , 22 p.
Series
Örebro Studies in Economics, ISSN 1651-8896 ; 22
Keyword [en]
Multi-Unit Auction, Common Value Auction, Laboratory Experiment, Game Theory
National Category
Social Sciences Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:oru:diva-26015ISBN: 978-91-7668-893-9 (print)OAI: oai:DiVA.org:oru-26015DiVA: diva2:556717
Public defence
2012-11-09, Örebro universitet, Forumhuset, lokal BIO, Fakultetsgatan 1, Örebro, 13:15
Opponent
Supervisors
Available from: 2012-09-26 Created: 2012-09-26 Last updated: 2012-12-03Bibliographically approved
List of papers
1. Analysis of discrete multi-unit, common value auctions: a study of three sealed-bid mechanisms
Open this publication in new window or tab >>Analysis of discrete multi-unit, common value auctions: a study of three sealed-bid mechanisms
(English)Manuscript (preprint) (Other academic)
Abstract [en]

This paper proposes a discrete bidding model for both quantities and pricing. It has a two-unit demand environment where subjects bid for contracts with an unknown redemption value, common to all bidders. Prior to bidding, the bidders receive private signals of information on the (common) value. The value and the signals are drawn from a known discrete affiliated joint distribution. The relevant task for the paper is to compare the equilibrium strategies and the seller’s revenue of three auction formats. We find that, of the three auctionformats below with two players, the discriminatory auction always gives the largest revenue to the seller; both the uniform and the Vickrey auction have zero revenue equilibrium strategies that put them further down in the revenue ranking. In equilibrium, bidders bid the same amount on both items in the discriminatory auction; a phenomenon not noted in either of the other auction formats.

Keyword
Laboratory Experiment; Multi-Unit Auction; Common Value Auction
National Category
Economics and Business
Research subject
Economics
Identifiers
urn:nbn:se:oru:diva-26445 (URN)
Available from: 2012-11-16 Created: 2012-11-16 Last updated: 2012-12-03Bibliographically approved
2. Multi-unit common value auctions: a laboratory experiment with three sealed-bid mechansims
Open this publication in new window or tab >>Multi-unit common value auctions: a laboratory experiment with three sealed-bid mechansims
(English)Manuscript (preprint) (Other academic)
Abstract [en]

This study addresses a discrete common value environment with independent (one-dimensional) private signals, where the seller offers two identical units and the buyers have (flat) demand for both. Each session is conducted with2, 3 or 4 buyers. Three auction formats are used: the discriminatory, uniformand Vickrey auctions which are all subjected to a variation in the number of bidders and to repeating bid rounds on each subject. The main findings are that there are no significant differences between the uniform and the discriminatory auction in collecting revenue, while the Vickrey auction comes out as inferior. More bidders in the auction result in a greater revenue and level out the performance across the mechanisms. Demand reduction is visible in the experiment, but it is not as prominent as anticipated. Moreover, subjects come closer to equilibrium play over time. Finally, the winner’s curse is less severe than what is reported for inexperienced bidders in other studies.

Keyword
Laboratory Experiment, Multi-Unit Auction, Common Value Auction
National Category
Economics and Business
Research subject
Economics
Identifiers
urn:nbn:se:oru:diva-26446 (URN)
Available from: 2012-11-16 Created: 2012-11-16 Last updated: 2012-12-03Bibliographically approved
3. Multi-unit common value auctions: an experimental comparison between the static and the dynamic uniform auction
Open this publication in new window or tab >>Multi-unit common value auctions: an experimental comparison between the static and the dynamic uniform auction
(English)Manuscript (preprint) (Other academic)
Abstract [en]

It is still an open question whether the dynamic or the static format should be used in multi-unit settings, in a uniform price auction. The present study conducts an economic experiment in a common value environment, where it is found that it is more a question of whether the auctioneer wants to facilitate price discovery, and thereby lessen the otherwise pervasive overbidding, or if only the revenue is important. The experiment in the present paper provides evidence that the static format gives a significantly greater revenue than the dynamic auction, in both small and large group sizes. But a higher revenue comes at a cost; half of the auctions in the static format yield negative profits to the bidders, the winner’s curse is more severely widespread in the static auction, and only a minority of the bidders use the equilibrium bidding strategy.

Keyword
Laboratory Experiment, Multi-Unit Auction, Common Value Auction
National Category
Economics and Business
Research subject
Economics
Identifiers
urn:nbn:se:oru:diva-26447 (URN)
Available from: 2012-11-16 Created: 2012-11-16 Last updated: 2012-12-03Bibliographically approved

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