Auctioning to buyers with correlated values

Robert Hammond

Applied Economics Letters, 2011, vol. 18, issue 5, 405-409

Abstract: In a laboratory setting, a monopolistic auctioneer sells to buyers as the level and nature of demand changes. I ask whether sellers correctly recognize the role played by correlation among buyers' values. The prices set by subjects closely match the risk-neutral benchmark predictions when demand follows the independent-private-values framework. In contrast, subjects fail to correctly account for correlation among buyers' values once the independence assumption is dropped. I offer two new models of pricing in a correlated-values environment. The model that suggests sellers ignore correlation outperforms both the benchmark and the model that suggests sellers incorrectly account for correlation.

Date: 2011
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Working Paper: Auctioning to Buyers with Correlated Values (2010)
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DOI: 10.1080/13504851003724275

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