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Theoretical And Experimental Analysis Of Auctions With Negative Externalities, Youxin Hu, John Kagel, Xiaoshu Xu, Lixin Ye
Theoretical And Experimental Analysis Of Auctions With Negative Externalities, Youxin Hu, John Kagel, Xiaoshu Xu, Lixin Ye
Youxin Hu
We investigate a private value auction in which a single “entrant” on winning imposes a negative externality on two “regular” bidders. In an English auction, when all bidders are active “regulars” free ride, exiting before price reaches their value. In a first-price sealed-bid auction incentives for free riding and aggressive bidding coexist, limiting free riding. We find substantial, though incomplete, free riding in the clock auction. In first-price auctions, regular bidders bid more aggressively than the “entrant” and both bid higher than in auctions with no externality. Predictions regarding revenue, efficiency, and successful entry between the two auctions are satisfied.
Theoretical And Experimental Analysis Of Auctions With Negative Externalities, Youxin Hu, John Kagel, Lixin Ye
Theoretical And Experimental Analysis Of Auctions With Negative Externalities, Youxin Hu, John Kagel, Lixin Ye
Youxin Hu
We investigate a model in which a single bidder (the “entrant”), on winning the auction, imposes a negative externality on two “regular” bidders. In an ascending price clock auction, in equilibrium when all bidders are active a regular bidder free rides, dropping out before reaching his private value. Despite this free riding problem, in almost all cases, the item is ex post efficiently assigned. In contrast, in a first-price sealed bid auction incentives for free riding and aggressive bidding coexist, leading to a lower ex post efficiency. The experiment shows minimal free riding in the clock auction, but as predicted, …