Cheating in Second Price Auctions and Emotional Responses

Shashidharan Sharma

MPRA Paper from University Library of Munich, Germany

Abstract: This paper aims to address a gap in literature at the intersection of cheating in auctions and emotional responses. In a second price auction with a cheating seller, we model the bidder's dislike for the possibility of cheating by drawing upon the idea of reference point-based utility. A symmetric increasing equilibrium strategy is characterised and comparative statics are analysed. A comparison of expected payoffs to honest and dishonest sellers is made. We find that if reference points are low enough then the cheating seller's payoff is lower than what a seller earns in a regular first-price auction. Our results show that even with bidders disliking cheating, honest sellers lose out due to bidders shading their bids to accommodate for the possibility of being cheated.

Keywords: Second Price Auctions; Reference Dependence; Emotional Responses (search for similar items in EconPapers)
JEL-codes: D44 D89 (search for similar items in EconPapers)
Date: 2022-12-27
New Economics Papers: this item is included in nep-des, nep-gth, nep-mic and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:121492

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