Bid and price effects of increased competition in the first-price auction: experimental evidence

Tibor Neugebauer

LSF Research Working Paper Series from Luxembourg School of Finance, University of Luxembourg

Abstract: The paper reports experimental data on the behavior in the first-price sealed-bid auction for a varying number of market participants when values and bids are private information. In line with the theory, the data show that the price and the bid-value ratio increase with the number of participants. Indeed the increase of bids in market size is not as steep as predicted by the risk neutral Nash equilibrium. Consequently, bids are more likely to be above [below] the equilibrium for small [big] market size and at equilibrium for some market size. The relationship between market size and average bids or prices is captured by an increasing bidding function which allows an estimate for greater market sizes. The " behavioral pattern of prices is slightly different; the observed price increase due to an" increase in market size does quite closely match the predicted one. It is argued that the heterogeneity of bidding behavior leads to higher prices than would be expected under symmetric bidding.

Keywords: First-price auctions; experiment. (search for similar items in EconPapers)
JEL-codes: C92 D44 (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (5)

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