Spite and Reciprocity in Auctions

Naoko Nishimura, Timothy Cason, Tatsuyoshi Saijo () and Yoshikazu Ikeda
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Naoko Nishimura: Department of Economics, Shinshu University, Matsumoto, Nagano 390-8621, Japan
Yoshikazu Ikeda: Department of Economics, University of Kitakyushu, Kitakyushu, Fukuoka 802-0841, Japan

Games, 2011, vol. 2, issue 3, 1-47

Abstract: The paper presents a complete information model of bidding in second price sealed-bid and ascending-bid (English) auctions, in which potential buyers know the unit valuation of other bidders and may spitefully prefer that their rivals earn a lower surplus. Bidders with spiteful preferences should overbid in equilibrium when they know their rival has a higher value than their own, and bidders with a higher value underbid to reciprocate the spiteful overbidding of the lower value bidders. The model also predicts different bidding behavior in second price as compared to ascending-bid auctions. The paper also presents experimental evidence broadly consistent with the model. In the complete information environment, lower value bidders overbid more than higher value bidders, and they overbid more frequently in the second price auction than in the ascending price auction. Overall, the lower value bidder submits bids that exceed value about half the time. These patterns are not found in the incomplete information environment, consistent with the model.

Keywords: ascending-bid auction; second price auction; experiment; dominant strategy; social preferences; spite; reciprocity; English auction (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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