Theoretical and Experimental Analysis of Auctions with Negative Externalities

Youxin Hu (), John Kagel, Xiaoshu Xu and Lixin Ye ()

MPRA Paper from University Library of Munich, Germany

Abstract: We investigate a private value auction in which a single "entrant" on winning imposes a negative externality on two "regular" bidders. In an English auction, when all bidders are active "regulars" free ride, exiting before price reaches their value. In a first-price sealed-bid auction incentives for free riding and aggressive bidding coexist, limiting free riding. We find substantial, though incomplete, free riding in the clock auction. In first-price auctions, regular bidders bid more aggressively than the "entrant" and both bid higher than in auctions with no externality. Predictions regarding revenue, efficiency, and successful entry between the two auctions are satisfied.

Keywords: Auctions; externality; free riding; aggressive bidding; experiments. (search for similar items in EconPapers)
JEL-codes: C91 D44 D82 (search for similar items in EconPapers)
Date: 2012-12
New Economics Papers: this item is included in nep-cta and nep-exp
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https://mpra.ub.uni-muenchen.de/47060/1/MPRA_paper_47060.pdf original version (application/pdf)

Related works:
Journal Article: Theoretical and experimental analysis of auctions with negative externalities (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:47060

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