Experimental Economics

, Volume 17, Issue 1, pp 100-128

First online:

Valuation structure in first-price and least-revenue auctions: an experimental investigation

  • Diego AycinenaAffiliated withCentro Vernon Smith de Economía Experimental, Universidad Francisco Marroquín
  • , Rimvydas BaltaduonisAffiliated withDepartment of Economics, Gettysburg College
  • , Lucas RentschlerAffiliated withCentro Vernon Smith de Economía Experimental, Universidad Francisco Marroquín Email author 

Rent the article at a discount

Rent now

* Final gross prices may vary according to local VAT.

Get Access


In many auctions the valuation structure involves both private and common value elements. Existing experimental evidence (e.g. Goeree and Offerman in Am. Econ. Rev. 92(3):625–643, 2002) demonstrates that first-price auctions with this valuation structure tend to be inefficient, and inexperienced subjects tend to bid above the break-even bidding threshold. In this paper, we compare first-price auctions with an alternative auction mechanism: the least-revenue auction. This auction mechanism shifts the risk regarding the common value of the good to the auctioneer. Such a shift is desirable when ex post negative payoffs for the winning bidder results in unfulfilled contracts, as is often the case in infrastructure concessions contracts. We directly compare these two auction formats within two valuation structures: (1) pure common value and (2) common value with a private cost. We find that, relative to first-price auctions, bidding above the break-even bidding threshold is significantly less prevalent in least-revenue auctions regardless of valuation structure. As a result, revenue in first-price auctions is higher than in least-revenue auctions, contrary to theory. Further, when there are private and common value components, least-revenue auctions are significantly more efficient than first-price auctions.


Auctions Winner’s curse Allocative efficiency Bidding

JEL Classification

D44 C72