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155
Demand Reduction and Inefficiency in Multiunit Auctions
, 2013
"... Auctions typically involve the sale of many related goods. Treasury, spectrum and electricity auctions are examples. In auctions where bidders pay the marketclearing price for items won, large bidders have an incentive to reduce demand in order to pay less for their winnings. This incentive creates ..."
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Cited by 197 (19 self)
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Auctions typically involve the sale of many related goods. Treasury, spectrum and electricity auctions are examples. In auctions where bidders pay the marketclearing price for items won, large bidders have an incentive to reduce demand in order to pay less for their winnings. This incentive creates an inefficiency in multipleitem auctions. Large bidders reduce demand for additional items and so sometimes lose to smaller bidders with lower values. We demonstrate this inefficiency in an auction model which allows interdependent values. We also establish that the ranking of the uniformprice and payasbid auctions is ambiguous in both revenue and efficiency terms. Bidding behavior in spectrum auctions, electricity auctions, and experiments highlights the empirical importance of demand reduction.
Levelk Auctions: Can a Nonequilibrium Model of Strategic Thinking Explain the Winner’s Curse and Overbidding in PrivateValue Auctions?
 ECONOMETRICA
, 2005
"... ..."
Are Structural Estimates of Auction Models Reasonable? Evidence from Experimental Data
 JOURNAL OF POLITICAL ECONOMY
, 2003
"... Recently, economists have developed methods for structural estimation of auction models. Many researchers object to these methods because they find the rationality assumptions used in these models to be implausible. In this paper, we explore whether structural auction models can generate reasonable ..."
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Cited by 55 (5 self)
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Recently, economists have developed methods for structural estimation of auction models. Many researchers object to these methods because they find the rationality assumptions used in these models to be implausible. In this paper, we explore whether structural auction models can generate reasonable estimates of bidders’ private information. Using bid data from auction experiments, we estimate four alternative structural models of bidding in firstprice sealedbid auctions: 1) risk neutral BayesNash, 2) risk averse BayesNash, 3) a model of learning and 4) a quantal response model of bidding. For each model, we compare the estimated valuations and the valuations assigned to bidders in the experiments. We find that a slight modification of Guerre, Perrigne and Vuong’s (2000) procedure for estimating the risk neutral BayesNash model to allow for bidder asymmetries generates quite reasonable estimates of the structural parameters.
Semiparametric Estimation of FirstPrice Auctions with Risk Averse Bidders
, 2000
"... This paper proposes a semiparametric estimation procedure of the firstprice auction model with risk averse bidders within the independent private values paradigm. We show that the model is nonidentified in general from observed bids. Moreover, any distribution of bids can be rationalized by an auct ..."
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Cited by 49 (1 self)
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This paper proposes a semiparametric estimation procedure of the firstprice auction model with risk averse bidders within the independent private values paradigm. We show that the model is nonidentified in general from observed bids. Moreover, any distribution of bids can be rationalized by an auction model with either constant relative risk aversion or constant absolute risk aversion. Thus identification of the model must be achieved through additional restrictions. We then establish semiparametric identification under a common but unknown support condition and parameterization of the bidders' utility function. Next we propose a semiparametric method for estimating the corresponding auction model using local polynomial estimators. This method involves several steps and allows to recover the parameters of the utility function as well as the bidders' private values and their distribution. An attractive computational advantage of our method is that it does not require solving the differential equation characterizing the equilibrium strategy. An illustration of the method on U.S. Forest Service timber sales is proposed. In particular, a test of bidders' risk neutrality is performed.
Identification and Estimation in Highway Procurement Auctions under Unobserved Auction Heterogeneity
, 2004
"... The accurate assessment of participants’ private information may critically affect policy recommendations in auction markets. In many auction environments estimation of the private information distribution may be complicated by the presence of unobserved heterogeneity. This problem arises when some ..."
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Cited by 48 (1 self)
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The accurate assessment of participants’ private information may critically affect policy recommendations in auction markets. In many auction environments estimation of the private information distribution may be complicated by the presence of unobserved heterogeneity. This problem arises when some of the information available to all bidders at the time of the auction is subsequently not observed by the researcher. This paper develops a semiparametric method that allows a researcher to uncover the distribution of bidders’ private information in a standard FirstPrice procurement auction when unobserved auction heterogeneity is present. Sufficient identification conditions are derived and a twostage estimation procedure to recover bidders’ private information is developed. The procedure is applied to data from Michigan highway procurement auctions and compared to the estimation procedures traditionally used in the context of highway procurement auctions. The estimation results suggest that ignoring unobserved auction heterogeneity is likely to result in substantially biased estimates and may lead to erroneous policy recommendations.
Optimal Collusion with Persistent Cost Shocks
, 2006
"... We consider a dynamic Bertrand game, in which prices are publicly observed and each firm receives a privately observed cost shock in each period. Although cost shocks are independent across firms, within a firm costs follow a firstorder Markov process. We analyze the set of collusive equilibria ava ..."
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Cited by 40 (4 self)
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We consider a dynamic Bertrand game, in which prices are publicly observed and each firm receives a privately observed cost shock in each period. Although cost shocks are independent across firms, within a firm costs follow a firstorder Markov process. We analyze the set of collusive equilibria available to firms, emphasizing the best collusive scheme for the firms at the start of the game. In general, there is a tradeoff between productive efficiency, whereby the lowcost firm serves the market in a given period, and high prices. We show that when costs are perfectly correlated over time within a firm, if the distribution of costs is log concave and firms are sufficiently patient, then the optimal collusive scheme entails price rigidity: firms set the same price and share the market equally, regardless of their respective costs. Productive efficiency can be achieved in equilibrium under some circumstances, but such equilibria are not optimal. When serial correlation of costs is imperfect, partial productive efficiency is optimal. For the case of two cost types, firstbest collusion is possible if the firms are patient relative to the persistence of cost shocks, but not otherwise. We present numerical examples of rfistbest collusive schemes.
Multidimensional Private Value Auctions
 forth.), Journal of Economic Theory
, 2004
"... We consider parametric examples of twobidder private value auctions in which each bidder observes her own private valuation as well as noisy signals about her opponent’s private valuation. In such multidimensional private value auction environments, we show that the revenue equivalence between the ..."
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Cited by 38 (7 self)
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We consider parametric examples of twobidder private value auctions in which each bidder observes her own private valuation as well as noisy signals about her opponent’s private valuation. In such multidimensional private value auction environments, we show that the revenue equivalence between the first and second price auctions breaks down and there is no definite revenue ranking; while the second price auction is always efficient allocatively, the first price auction may be inefficient and the inefficiency may increase as the signal becomes more informative; equilibria may fail to exist for the first price auction. We also show that auction mechanisms provide different incentives for bidders to acquire costly information about opponents ’ valuation.
The Effect of Bidders’ Asymmetries on Expected Revenue
 in Auctions.” Cowles Foundation Discussion Paper 1279
, 2000
"... COWLES FOUNDATION DISCUSSION PAPER NO. 1279 ..."