Common Value Auctions and the Winner's Curse

Contents......Page 8
Preface......Page 14
Credits......Page 16
1. Bidding in Common Value Auctions: A Survey of Experimental Research......Page 20
1. An Initial Experiment Demonstrating the Winner’s Curse......Page 23
2. Sealed-Bid Auctions......Page 24
2.1 Theoretical Considerations: First-Price Sealed-Bid Auctions......Page 25
2.3 Auctions with Moderately Experienced Bidders and the Effects of Public Information on Sellers’ Revenue......Page 26
2.4 Is the Winner’s Curse a Laboratory Artifact? Limited Liability for Losses......Page 32
2.5 Second-Price Sealed-Bid Auctions......Page 35
2.6 Group versus Individual Bids......Page 39
2.7 Summing Up......Page 41
3. English Auctions and First-Price Auctions with Insider Information......Page 42
3.1 English Auctions......Page 43
3.2 Auctions with Insider Information......Page 46
4.1 The Winner’s Curse in Bilateral Bargaining Games......Page 52
4.2 The Winner’s Curse in “Blind-Bid” Auctions......Page 55
4.3 Lemons and Ripoffs: The Winner’s Curse in Markets with Quality Endogenously Determined......Page 58
4.4 The Swing Voter’s Curse......Page 59
4.5 Summing Up......Page 65
5.1 Bilateral Bargaining Games......Page 66
5.2 Inexperienced Bidders in Sealed-Bid Auctions......Page 67
5.3 Super-Experienced Bidders in Sealed-Bid Auctions......Page 70
5.4 The Role of Information Feedback on Learning......Page 71
6. Comparing Results from Field Studies with Experiments......Page 72
6.1 Direct Comparisons between Laboratory and Field Data......Page 75
6.2 Differences in Structure between Laboratory and Field Auctions......Page 77
7.1 Summary of Empirical Findings from the Laboratory......Page 79
7.2 Theory Motivated by Experiments......Page 81
7.3 Auction Theory and Experiments at Work: Airwave Rights Auctions......Page 84
8. Overview of What Follows......Page 85
1. Introduction......Page 104
2. Structure of the Auctions......Page 105
3. Theoretical Considerations and the Winner’s Curse......Page 106
4.1 Market Outcomes......Page 108
4.2 Individual Bidding Behavior over Time......Page 112
5. Summary and Conclusions......Page 119
Appendix: Inexperienced Bidders in Second-Price Common Value Auctions......Page 120
Notes......Page 123
References......Page 124
3. The Winner’s Curse and Public Information in Common Value Auctions......Page 126
1.1 Basic Auction Structure......Page 127
1.2 Auctions with Public Information......Page 131
1.4 The Experience Factor......Page 132
2.1 Private Information Conditions......Page 133
2.2 Effects of Public Information......Page 135
2.3 Summary of Research Questions of Primary Interest......Page 137
3.1 Bidding Patterns with Private Information......Page 138
3.2 Effects of Public Information on Seller’s Revenues......Page 146
4. Toward Generalizability: But Is This How the Real World Operates?......Page 150
5. Conclusions......Page 153
Notes......Page 155
References......Page 159
Addendum: Benchmark Equilibrium for First-Price Auctions with Public Information......Page 160
1. Introduction......Page 168
2.2 Auctions with Public Information......Page 171
2.3 Subject Experience and Varying Numbers of Bidders......Page 172
3.1 Naive Bidding under Private Information Conditions: A Model of the Winner’s Curse......Page 173
3.2 Nash Equilibrium Bidding under Private Information Conditions......Page 174
3.3 Naive Bidding under Public Information Conditions......Page 175
3.4 Nash Equilibrium Bidding under Public Information Conditions......Page 176
4.1 Bidding Patterns with Private Information......Page 179
4.2 Effects of Public Information on Revenue......Page 184
5. Summary and Conclusions......Page 188
Appendix......Page 190
Notes......Page 192
References......Page 194
1. Introduction......Page 196
2.1 First-Price Auctions......Page 197
2.3 Subjects......Page 200
3.1 First-Price Auctions......Page 201
3.2 Second-Price/English Auctions......Page 205
4.1 First-Price Auctions......Page 206
4.2 Second-Price/English Auctions......Page 216
5. Summary and Conclusions......Page 221
Appendix A......Page 222
Appendix B: Derivation of Risk-Neutral Nash Bid Function......Page 223
Notes......Page 224
References......Page 228
6. Revenue Effects and Information Processing in English Common Value Auctions......Page 229
1. Structure of the Auctions......Page 230
2.1 Factors Promoting Revenue Raising in English Auctions......Page 232
2.2 Forces Inhibiting Revenue Raising in English Auctions......Page 235
3.1 Revenue Effects of English Auctions......Page 236
3.2 Bidding Behavior in English Auctions......Page 240
5. Summary and Conclusions......Page 251
Appendix A: Derivation of Equilibrium Bid Functions......Page 253
Appendix B: Full Information Maximum Likelihood Estimates......Page 255
Notes......Page 259
References......Page 262
7. Common Value Auctions with Insider Information......Page 264
1. Structure of the Auctions......Page 265
2. Theoretical Considerations......Page 266
2.1 The Winner’s Curse......Page 267
2.3 Auctions with Asymmetric Information Structure (AIS)......Page 268
3.1 Auctions with Inexperienced Bidders......Page 270
3.2 Super-Experienced Bidders......Page 275
3.3 Learning and Adjustments in Insider’s Bids over Time......Page 280
4. Summary and Conclusions......Page 282
Appendix: Increases in Expected Revenue in Auctions with Insider Information......Page 283
Notes......Page 284
References......Page 287
1. Introduction......Page 289
2. The Model......Page 290
2.1 Environments of No Private Information......Page 291
2.2 Homogeneous Private Information......Page 292
2.3 Heterogeneous Bidders I: Partitioned Information......Page 293
2.4 Heterogeneous Bidders II: Nonpartitioned Information......Page 294
2.5 Discussion......Page 295
Appendix......Page 300
References......Page 301
1. Introduction......Page 303
2. The Base Model......Page 304
2.1 Equilibrium Analysis......Page 305
2.2 Revenue Comparisons......Page 308
3. Experimental Design......Page 309
4. Experimental Hypotheses......Page 311
5. Experimental Results......Page 314
6. Summary and Conclusion......Page 323
Appendix......Page 324
Notes......Page 327
References......Page 329
1. Introduction......Page 330
2. Experimental Design......Page 331
3. Theoretical Considerations: Measures of Learning and Adjustment......Page 334
4.1 The Data to Be Explained: Adjustments in Bidding over Time in First-Price Auctions......Page 335
4.2 Market Adjustments: Self-Selection among Returning Bidders......Page 338
4.3 Learning/Adjustment Mechanisms for Individual Bidders......Page 341
5. Summary......Page 348
Notes......Page 349
References......Page 350
1. Introduction......Page 351
2. Experimental Procedures and Performance Measures......Page 352
3. Experimental Results......Page 353
4. Analysis and Conclusions......Page 356
Notes......Page 357
References......Page 358
12. A Comparison of Naive and Experienced Bidders in Common Value Offer Auctions: A Laboratory Analysis......Page 359
2. Theoretical Considerations......Page 360
3.1 Experiments with N = 4......Page 361
3.2 Effects of Changing N and Public Information......Page 364
4. Conclusion and Discussion......Page 365
Notes......Page 366
References......Page 367
1. Introduction......Page 368
3. Theoretical Considerations......Page 370
4. Bid Distribution Characteristics of Sample Data......Page 373
5. Differences in Auction Structure between Theory and Practice......Page 377
5.1 Mechanisms for Escaping the Winner’s Curse......Page 378
5.3 Private Value/Chance Elements in Bidding......Page 380
6. Industry-Specific Characteristics and Their Relationship to Auction Theory......Page 381
7. Summary and Conclusions......Page 383
Appendix: Variation in Subcontractor Bids to General Contractors......Page 384
References......Page 387
Instructions......Page 389
A......Page 414
B......Page 415
C......Page 416
L......Page 417
O......Page 418
V......Page 419
Z......Page 420