Lowest Unique Bid Auctions with Signals

Andrea Gallice

No 112, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: A lowest unique bid auction allocates a good to the agent who submits the lowest bid that is not matched by any other bid. This peculiar auction format is becoming increasingly popular over the Internet. We show that when all the bidders are rational such a selling mechanism can lead to positive profits only if there is a large mismatch between the auctioneer's and the bidders' valuation. On the contrary, the auction becomes highly lucrative if at least some bidders are myopic. In this second case, we analyze the key role played by the existence of some private signals that the seller sends to the bidders about the status of their bids. Data about actual auctions confirm the profitability of the mechanism and the limited rationality of the bidders.

Keywords: Lowest unique bid auctions; Signals; Bounded rationality. (search for similar items in EconPapers)
JEL-codes: C72 D44 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2009-05, Revised 2009-09
New Economics Papers: this item is included in nep-cta, nep-gth and nep-upt
References: Add references at CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:112

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