Efficiency in Second-Price Auctions: A New Look at Old Data

Rodney J. Garratt, John Wooders

Research output: Contribution to journalArticle

Abstract

Experiments on second-price sealed-bid private value auctions have established that subjects typically bid more than their value, despite the fact that value bidding is a dominant strategy in such auctions. Moreover, the laboratory evidence shows that subjects do not learn to bid their values as they gain more experience. In the present paper, we re-examine the second-price auction data from Kagel and Levin's (Econ J 103:868-879, 1993) classic paper. We find that auction efficiency increases over time, even though the frequency of overbidding is unchanged. We argue that the rise in efficiency is due to a decline in the variability of overbidding. This is consistent with subjects' learning to bid more like each other.

Original languageEnglish (US)
Pages (from-to)43-50
Number of pages8
JournalReview of Industrial Organization
Volume37
Issue number1
DOIs
StatePublished - 2010

Keywords

  • Bidding
  • Efficiency
  • Second price auction

ASJC Scopus subject areas

  • Economics and Econometrics
  • Strategy and Management
  • Organizational Behavior and Human Resource Management
  • Management of Technology and Innovation

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