Dutch vs. First-Price Auctions With Expectations-Based Loss-Averse Bidders

Benjamin Balzer, Antonio Rosato and Jonas von Wangenheim ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: We study Dutch and first-price auctions with expectations-based loss-averse bidders and show that the strategic equivalence between these formats no longer holds. Intuitively, as the Dutch auction unfolds, a bidder becomes more optimistic about her chances of winning; this stronger "attachment" effect pushes her to bid more aggressively than in the first-price auction. Thus, Dutch auctions raise more revenue than first-price ones. Indeed, the Dutch auction raises the most revenue among standard auction formats. Our results imply that dynamic mechanisms that make bidders more optimistic raise more revenue, thereby ratio- nalizing the use of descending-price mechanisms by sellers in this field.

Keywords: Loss Aversion; Dutch Auctions; Revenue Equivalence; Personal Equilibrium (search for similar items in EconPapers)
JEL-codes: D44 D81 D82 (search for similar items in EconPapers)
Pages: 34
Date: 2021-07
New Economics Papers: this item is included in nep-des, nep-exp, nep-gth, nep-mic and nep-upt
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Journal Article: Dutch vs. first-price auctions with expectations-based loss-averse bidders (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2021_314

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