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Fear of Losing in a Clock Auction

Peter Cramton (), Emel Filiz-Ozbay (), Erkut Ozbay () and Pacharasut Sujarittanonta
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Emel Filiz-Ozbay: Economics Department, University of Maryland, http://www.econ.umd.edu

Authors registered in the RePEc Author Service: Emel Filiz Ozbay

Papers of Peter Cramton from University of Maryland, Department of Economics - Peter Cramton

Abstract: We examine bidding behavior in a clock auction in which price is set by the lowest-accepted bid and provisional winners are reported each round (the LABpw auction). This format was used in the India 3G spectrum auction. In the standard theory, the auction performs poorly. In particular it yields lower revenues and is less efficient than the more standard clock auction with exit bids and highest-rejected-bid pricing (the HRB auction). However, the LABpw auction performs well in the lab, achieving higher revenues than the HRB auction. We show how fear of losing provides one motivation for the overbidding that causes higher revenues in the LABpw auction.

Keywords: Auctions; clock auctions; spectrum auctions; behavioral economics; market design (search for similar items in EconPapers)
JEL-codes: D44 C78 L96 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp and nep-hpe
Date: 2012, Revised 2012
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Published in Review of Economic Design, 16:2-3, 119-134, 2012

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