Auctioning to Buyers with Correlated Values

Robert Hammond

No 21, Working Paper Series from North Carolina State University, Department of Economics

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.

Keywords: Auction; correlated values; monopoly; laboratory experiment (search for similar items in EconPapers)
JEL-codes: C91 D44 L12 (search for similar items in EconPapers)
Date: 2007-05-23, Revised 2010-01-22
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Forthcoming in Applied Economics Letters

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Journal Article: Auctioning to buyers with correlated values (2011)
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