Advertisement

Experimental Economics

, Volume 11, Issue 4, pp 344–357 | Cite as

Time is money: The effect of clock speed on seller’s revenue in Dutch auctions

  • Elena Katok
  • Anthony M. Kwasnica
Article

Abstract

We study the role of timing in auctions under the premise that time is a valuable resource. When one object is for sale, Dutch and first-price sealed bid auctions are strategically equivalent in standard models, and therefore, they should yield the same revenue for the auctioneer. We study Dutch and first-price sealed bid auctions in the laboratory, with a specific emphasis on the speed of the clock in the Dutch auction. At fast clock speeds, revenue in the Dutch auction is significantly lower than it is in the sealed bid auction. When the clock is sufficiently slow, however, revenue in the Dutch auction is higher than the revenue in the sealed bid auction. We develop and test a simple model of auctions with impatient bidders that is consistent with these laboratory findings.

Keywords

Auctions Experimental economics 

JEL

D44 C91 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

Supplementary material

10683_2007_9169_MOESM1_ESM.doc (36 kb)
Data Object

References

  1. Camerer, C. (1995). Individual decision making. In J. H. Kagel & A. E. Roth (Eds.), The handbook of experimental economics (pp. 587–703). Princeton: Princeton University Press. Google Scholar
  2. Carare, O., & Rothkopf, M. (2005). Slow Dutch auctions. Management Science, 51(3), 365–373. CrossRefGoogle Scholar
  3. Cox, J., Roberson, R., & Smith, V. L. (1982). Theory and behavior of single object auctions. Research in Experimental Economics, 1, 61–99. Google Scholar
  4. Cox, J., Smith, V. L., & Walker, J. M. (1983). A test that discriminates between two models of the Dutch – first auction non-isomorphism. Journal of Economic Behavior and Organization, 4, 205–219. CrossRefGoogle Scholar
  5. Engelbrecht-Wiggans, R. (1987). On optimal reservation prices in auctions. Management Science, 33(6), 763–770. CrossRefGoogle Scholar
  6. Engelbrecht-Wiggans, R. (1989). The effect of regret on optimal bidding in auctions. Management Science, 35(6), 685–692. Google Scholar
  7. Engelbrecht-Wiggans, R. (1993). Optimal auctions revisited. Games and Economic Behavior, 5, 227–239. CrossRefGoogle Scholar
  8. Fischbacher, U. (2007). z-Tree: Zurich toolbox for ready-made economic experiments. Experimental Economics, 10(2), 171–178. CrossRefGoogle Scholar
  9. Kagel, J. H. (1995) Auctions. In J. H. Kagel & A. E. Roth (Eds.), The handbook of experimental economics (pp. 501–585). Princeton: Princeton University Press. Google Scholar
  10. Katok, E., & Kwasnica, A. (2004). Time is money: the effect of clock speed on seller’s revenue in Dutch auctions. Working paper. Google Scholar
  11. Levin, D., & Smith, J. L. (1994). Equilibrium auctions with entry. American Economic Review, 84, 585–599. Google Scholar
  12. Lucking-Reiley, D. H. (1999). Using field experiments to test equivalence between auction formats: magic on the Internet. American Economic Review, 89(5), 1063–1080. CrossRefGoogle Scholar
  13. Reynolds, S., & Wooders, J. (2003). Auctions with a buy price. University of Arizona Working Paper #03-01. Google Scholar
  14. Van den Berg, G. J., van Ours, J. C., & Pradhan, M. P. (2001). The declining price anomaly in Dutch rose auctions. American Economic Review, 91(4), 1055–1062. CrossRefGoogle Scholar
  15. Vickrey, W. (1961). Counterspeculation, auctions, and competitive sealed tenders. Journal of Finance, 16, 8–37. CrossRefGoogle Scholar

Copyright information

© Economic Science Association 2007

Authors and Affiliations

  1. 1.Smeal College of BusinessPenn State UniversityUniversity ParkUSA
  2. 2.Smeal College of BusinessPenn State UniversityUniversity ParkUSA

Personalised recommendations