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Full-Text Articles in Behavioral Economics
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, …