Penny auctions

Toomas Hinnosaar

International Journal of Industrial Organization, 2016, vol. 48, issue C, 59-87

Abstract: This paper studies penny auctions, a novel auction format in which every bid increases the price by a small amount, but placing a bid is costly. Outcomes of real-life penny auctions are often surprising. Even when selling cash, the seller may obtain revenue that is much higher or lower than its nominal value, and losers in an auction sometimes pay much more than the winner. This paper characterizes all symmetric Markov-perfect equilibria of penny auctions and studies penny auctions’ properties. The results show that a high variance of outcomes is a natural property of the penny auction format and high revenues are inconsistent with rational risk-neutral participants.

Keywords: Penny auctions; Internet auctions; Bid fees; Gambling (search for similar items in EconPapers)
JEL-codes: C73 D11 D44 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:48:y:2016:i:c:p:59-87

DOI: 10.1016/j.ijindorg.2016.06.005

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