Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/96855
Authors: 
Bartling, Björn
Netzer, Nick
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 4771
Abstract: 
An auction is externality-robust if unilateral deviations from equilibrium leave the other bidders’ payoffs unaffected. The equilibrium and its outcome will then persist if certain types of externalities arise between bidders. One example are externalities due to spiteful preferences, which have been used to explain overbidding in the second-price auction (SPA). Another example are cross-shareholdings between companies that compete in an auction. We derive an auction that coincides with the SPA in terms of efficiency and revenue but, in contrast to the SPA, is externality-robust. The externality-robust auction (ERA) is a first-price auction in which truthful bidding is encouraged by bonus payments. We test the robustness property experimentally by comparing SPA and ERA. We replicate the earlier finding of significant average overbidding in the SPA, but we find that bidders bid on average their value in the ERA. We conduct additional treatments where bidders play against the computer and we use controls for cognitive skills and joy of winning to further pin down the reasons behind the subjects’ bidding behavior.
Subjects: 
second-price auction
spitefulness
mechanism design
experimental auctions
JEL: 
C91
D03
D44
D82
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.