Vertically Differentiated Simultaneous Vickrey Auctions: Theory and Experimental Evidence

Ravi Bapna (), Chrysanthos Dellarocas () and Sarah Rice ()
Additional contact information
Ravi Bapna: Carlson School of Management, University of Minnesota, Minneapolis, Minnesota 55455; and Srini Raju Centre for IT and the Networked Economy, Indian School of Business, Hyderabad 500032, India
Chrysanthos Dellarocas: School of Management, Boston University, Boston, Massachusetts 02215
Sarah Rice: School of Business, University of Connecticut, Storrs, Connecticut 06269

Management Science, 2010, vol. 56, issue 7, 1074-1092

Abstract: We study settings where a number of sellers simultaneously offer vertically differentiated Vickrey auctions for imperfect substitute goods to unit-demand buyers. Vertical differentiation can arise from differences in item quality, item value certainty, seller reliability, or a combination of these factors. We characterize the form of the bidding equilibria and derive expressions for the corresponding allocative efficiency and expected seller revenue. When bidders are restricted to submit at most one bid, our theory predicts the existence of a unique Bayes-Nash equilibrium that resembles a form of probabilistic "mating-of-likes." Allowing unit-demand bidders to place an arbitrary number of bids induces complex strategy profiles where bidders place positive bids in all available auctions. Higher bidder types tend to follow more targeted strategies, focusing their "serious" bids on fewer and, generally, higher quality auctions. The nature of the bidding equilibria introduces allocative inefficiencies that arise from the lack of coordination in auction selection among bidders. We test our theoretical propositions in a controlled laboratory experiment while also utilizing a domain specific risk score to help assess how the bidders' risk type affects their bidding behavior. In support of our theory we find evidence of a probabilistic assortative matching between bidder and auction types. We also find that low risk type bidders tend to crowd on the highest auction and will pay a premium for the certainty it offers, whereas high risk type bidders fail to appropriately adjust for risk associated with the lowest auction, leading to overbidding. These lead to an interesting focal anomaly whereby bids are concentrated on the highest and lowest auctions, bypassing intermediate auctions.

Keywords: competing auctions; simultaneous auctions; vertical differentiation; reputation; game theory; laboratory experiment (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.1100.1176 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:56:y:2010:i:7:p:1074-1092

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().