The winner’s curse in auctions with losses

Matteo Migheli ()

Mind & Society: Cognitive Studies in Economics and Social Sciences, 2017, vol. 16, issue 1, No 7, 113-126

Abstract: Abstract The winner’s curse in auctions might emerge from asymmetric information and/or from some willingness to pay for winning. This article is based on a sealed-bid common value first price auction, with a net loss for the subject with the second highest bid. The results show the existence of a trade-off between the magnitude of the potential loss and the willingness to pay for the victory. In the context of public procurement these results suggest that companies are willing to overpay small contracts to gain a sort of ‘free advertising’, whereas this is not the case when the contracts are large.

Keywords: Sealed-bid auction; Winner’s curse; Risk; Public procurement (search for similar items in EconPapers)
JEL-codes: C91 D44 D81 H57 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s11299-017-0197-8

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