Theoretical and experimental analysis of auctions with negative externalities

Youxin Hu, John Kagel, Xiaoshu Xu and Lixin Ye ()

Games and Economic Behavior, 2013, vol. 82, issue C, 269-291

Abstract: 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, “regular” bidders free ride, exiting before price reaches their values. In a first-price sealed-bid auction incentives for free riding and aggressive bidding coexist, limiting free riding compared to the English auction. 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.

Keywords: Auctions; Externality; Free riding; Aggressive bidding; Experiments (search for similar items in EconPapers)
JEL-codes: C91 D44 D82 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Theoretical and Experimental Analysis of Auctions with Negative Externalities (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:82:y:2013:i:c:p:269-291

DOI: 10.1016/j.geb.2013.07.012

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