Lowest Unique Bid Auctions over the Internet: Ability, Lottery or Scam?

Andrea Gallice

Department of Economic Policy, Finance and Development (DEPFID) University of Siena from Department of Economic Policy, Finance and Development (DEPFID), University of Siena

Abstract: A lowest unique bid auction allocates a good to the agent who submits the lowest bid that is not matched by any other bid. This peculiar auction format is getting increasingly popular over the internet. We show that such a selling mechanism is unprofitable if bidders are rational but can become highly lucrative if bidders are myopic. In this second case, we analyze the key role played by the existence of some private signals that the seller sends to the bidders. Data about actual auctions confirm the profitability of the mechanism and the bounded rationality of the bidders.

Keywords: Lowest Unique Bid Auctions; Signals; Bounded Rationality. (search for similar items in EconPapers)
JEL-codes: C72 D44 D82 (search for similar items in EconPapers)
Date: 2008-06
New Economics Papers: this item is included in nep-cta, nep-gth and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:usi:depfid:0608

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