Experimental Economics

, Volume 21, Issue 4, pp 924–949 | Cite as

Auctions with endogenous participation and an uncertain number of bidders: experimental evidence

  • Diego Aycinena
  • Lucas RentschlerEmail author
Original Paper


Attracting bidders to an auction is a key factor in determining revenue. We experimentally investigate entry and bidding behavior in first-price and English clock auctions to determine the revenue implications of entry. Potential bidders observe their value and then decide whether or not to incur a cost to enter. We also vary whether or not bidders are informed regarding the number of entrants prior to placing their bids. Revenue equivalence is predicted in all four environments. We find that, regardless of whether or not bidders are informed, first-price auctions generate more revenue than English clock auctions. Within a given auction format, the effect of informing bidders differs. In first-price auctions, revenue is higher when bidders are informed, while the opposite is true in English clock auctions. The optimal choice for an auction designer who wishes to maximize revenue is a first-price auction with uninformed bidders.


Auctions Revenue equivalence Endogenous entry Experiments Bidding 

JEL Classifications

D44 D80 



Financial support from the International Foundation for Research in Experimental Economics is gratefully acknowledged. Thanks also to Jorge Chang Urrea, Pedro Monzón Alvarado and Diego Fernandez for outstanding research assistance. We have benefited from comments and suggestions from participants in seminars at Universidad Francisco Marroquín, Florida State University, the Economic Science Institute at Chapman University, the International ESA Conference in Chicago, the CeDEx Workshop at the University of Nottingham and the Antigua Experimental Economics Conference.

Supplementary material

10683_2017_9558_MOESM1_ESM.pdf (179 kb)
Supplementary material 1 (PDF 180 kb)


  1. Anwar, S., McMillan, R., & Zheng, M. (2006). Bidding behavior in competing auctions: Evidence from eBay. European Economic Review, 50(2), 307–322.CrossRefGoogle Scholar
  2. Aycinena, D., Bejarano, H., & Rentschler, L. (2017). Informed entry in auctions. International Journal of Game Theory. Scholar
  3. Camerer, C., & Lovallo, D. (1999). Overconfidence and excess entry: An experimental approach. American Economic Review, 89(1), 306–318.CrossRefGoogle Scholar
  4. Campbell, C. (1998). Coordination in auctions with entry. Journal of Economic Theory, 82(2), 425–450.CrossRefGoogle Scholar
  5. Cao, X., & Tian, G. (2008). Second-price auctions with differentiated participation costs. Working paper.Google Scholar
  6. Cao, X., & Tian, G. (2009). Second-price auctions with two-dimensional private information on values and participation costs. Working paper.Google Scholar
  7. Cao, X., & Tian, G. (2010). Equilibria in first-price auctions with participation costs. Games and Economic Behavior, 69(2), 258–273.CrossRefGoogle Scholar
  8. Chen, Y., Katuscak, P., & Ozdenoren, E. (2013). Why can’t a woman bid more like a man? Games and Economic Behavior, 77(1), 181–213.CrossRefGoogle Scholar
  9. Coppinger, V., Smith, V., & Titus, J. (1980). Incentives and behavior in English, Dutch and sealed-bid auctions. Economic Inquiry, 18(1), 1–22.CrossRefGoogle Scholar
  10. Cox, J., Roberson, B., & Smith, V. (1982). Theory and behavior of single object auctions. Research in Experimental Economics, 2, 1–43.Google Scholar
  11. Cox, J., Dinkin, S., & Swarthout, J. (2001). Endogenous entry and exit in common value auctions. Experimental Economics, 4(2), 163–181.CrossRefGoogle Scholar
  12. Dyer, D., Kagel, J., & Levin, D. (1989). Resolving uncertainty about the number of bidders in independent private-value auctions: An experimental analysis. Rand Journal of Economics, 20(2), 268–279.CrossRefGoogle Scholar
  13. Engelbrecht-Wiggans, R. (1987). On optimal reservation prices in auctions. Management Science, 33(6), 763–770.CrossRefGoogle Scholar
  14. Engelbrecht-Wiggans, R. (1993). Optimal auctions revisited. Games and Economic Behavior, 5(2), 227–39.CrossRefGoogle Scholar
  15. Engelbrecht-Wiggans, R., & Katok, E. (2005). Experiments on auction valuation and endogenous entry. Advances in Applied Microeconomics: A Research Annual, 13, 169–193.CrossRefGoogle Scholar
  16. Fischbacher, U. (2007). z-Tree: Zurich toolbox for ready-made economic experiments. Experimental Economics, 10(2), 171–178.CrossRefGoogle Scholar
  17. Fischbacher, U., & Thoni, C. (2008). Excess entry in an experimental winner-take-all market. Journal of Economic Behavior & Organization, 67(1), 150–163.CrossRefGoogle Scholar
  18. Goeree, J., & Holt, C. (2005). An explanation of anomalous behavior in models of political participation. American Political Science Review, 99(02), 201–213.CrossRefGoogle Scholar
  19. Green, J., & Laffont, J. (1984). Participation constraints in the vickrey auction. Economics Letters, 16(1), 31–36.CrossRefGoogle Scholar
  20. Greiner, B. (2004). An online recruitment system for economic experiments. Working Paper.Google Scholar
  21. Harstad, R., Kagel, J., & Levin, D. (1990). Equilibrium bid functions for auctions with an uncertain number of bidders. Economics Letters, 33(1), 35–40.CrossRefGoogle Scholar
  22. Hendricks, K., & Porter, R. H. (1988). An empirical study of an auction with asymmetric information. American Economic Review, 78(5), 865–883.Google Scholar
  23. Hendricks, K., Porter, R. H., & Boudreau, B. (1987). Information, returns, and bidding behavior in ocs auctions: 1954–1969. Journal of Industrial Economics, 35(4), 517–542.CrossRefGoogle Scholar
  24. Hendricks, K., Porter, R. H., & Spady, R. H. (1989). Random reservation prices and bidding behavior in OCS drainage auctions. Journal of Law and Economics, 32(2), S83–S106.CrossRefGoogle Scholar
  25. Hendricks, K., Porter, R. H., & Tan, G. (1993). Optimal selling strategies for oil and gas leases with an informed buyer. American Economic Review, 83(2), 234–239.Google Scholar
  26. Hendricks, K., Porter, R. H., & Wilson, C. A. (1994). Auctions for oil and gas leases with an informed bidder and a random reservation price. Econometrica, 62(6), 1415–1444.CrossRefGoogle Scholar
  27. Heydenreich, B., Müller, R., Uetz, M., & Vohra, R. (2009). Characterization of revenue equivalence. Econometrica, 77(1), 307–316.CrossRefGoogle Scholar
  28. Holt, C., & Laury, S. (2002). Risk aversion and incentive effects. American Economic Review, 92(5), 1644–1655.CrossRefGoogle Scholar
  29. Isaac, M., Pevnitskaya, S., & Schnier, K. (2012). Individual behavior and bidding heterogeneity in sealed bid auctions where the number of bidders is unknown. Economic Inquiry, 50(2), 516–533.CrossRefGoogle Scholar
  30. Ivanova-Stenzel, R., & Salmon, T. (2004). Bidder preferences among auction institutions. Economic Inquiry, 42(2), 223–236.CrossRefGoogle Scholar
  31. Ivanova-Stenzel, R., & Salmon, T. (2008a). Revenue equivalence revisited. Games and Economic Behavior, 64(1), 171–192.CrossRefGoogle Scholar
  32. Ivanova-Stenzel, R., & Salmon, T. (2008b). Robustness of bidder preferences among auction institutions. Economic Inquiry, 46(3), 355–368.CrossRefGoogle Scholar
  33. Ivanova-Stenzel, R., & Salmon, T. (2011). The high/low divide: Self-selection by values in auction choice. Games and Economic Behavior, 73(1), 200–214.CrossRefGoogle Scholar
  34. Kagel, J., & Levin, D. (1993). Independent private value auctions: Bidder behaviour in first-, second-and third-price auctions with varying numbers of bidders. Economic Journal, 103(419), 868–879.CrossRefGoogle Scholar
  35. Klemperer, P. (2002). What really matters in auction design. Journal of Economic Perspectives, 16(1), 169–189.CrossRefGoogle Scholar
  36. Levin, D., & Ozdenoren, E. (2004). Auctions with uncertain numbers of bidders. Journal of Economic Theory, 118(2), 229–251.CrossRefGoogle Scholar
  37. Levin, D., & Smith, J. (1994). Equilibrium in auctions with entry. American Economic Review, 84(3), 585–599.Google Scholar
  38. Li, T., & Zheng, X. (2009). Entry and competition effects in first-price auctions: Theory and evidence from procurement auctions. Review of Economic Studies, 76(4), 1397–1429.CrossRefGoogle Scholar
  39. List, J., & Lucking-Reiley, D. (2002). Bidding behavior and decision costs in field experiments. Economic Inquiry, 40(4), 611–619.CrossRefGoogle Scholar
  40. Lu, J. (2009). Auction design with opportunity cost. Economic Theory, 38(1), 73–103.CrossRefGoogle Scholar
  41. Matthews, S. (1987). Comparing auctions for risk averse buyers: A buyer’s point of view. Econometrica, 55(3), 633–46.CrossRefGoogle Scholar
  42. McAfee, R., & McMillan, J. (1987a). Auctions with entry. Economics Letters, 23(4), 343–347.CrossRefGoogle Scholar
  43. McAfee, R., & McMillan, J. (1987b). Auctions with a stochastic number of bidders. Journal of Economic Theory, 43(1), 1–19.CrossRefGoogle Scholar
  44. McAfee, P. R. (1993). Mechanism design by competing sellers. Econometrica, 61(6), 1281–1312.CrossRefGoogle Scholar
  45. Menezes, F., & Monteiro, P. (2000). Auctions with endogenous participation. Review of Economic Design, 5(1), 71–89.CrossRefGoogle Scholar
  46. Miralles, A. (2008). Intuitive and noncompetitive equilibria in weakly efficient auctions with entry costs. Mathematical Social Sciences, 56(3), 448–455.CrossRefGoogle Scholar
  47. Moreno, D., & Wooders, J. (2011). Auctions with heterogeneous entry costs. RAND Journal of Economics, 42(2), 313–336.CrossRefGoogle Scholar
  48. Myerson, R. B. (1981). Optimal auction design. Mathematics of Operations Research, 6(1), 58–73.CrossRefGoogle Scholar
  49. Palfrey, T., & Pevnitskaya, S. (2008). Endogenous entry and self-selection in private value auctions: An experimental study. Journal of Economic Behavior & Organization, 66(3), 731–747.CrossRefGoogle Scholar
  50. Peters, M., & Severinov, S. (1997). Competition among sellers who offer auctions instead of prices. Journal of Economic Theory, 75(1), 141–179.CrossRefGoogle Scholar
  51. Peters, M., & Severinov, S. (2006). Internet auctions with many traders. Journal of Economic Theory, 130(1), 220–245.CrossRefGoogle Scholar
  52. Pevnitskaya, S. (2004). Endogenous entry in first-price private value auctions: The self-selection effect. Working paper.Google Scholar
  53. Reiley, D. H. (2005). Experimental evidence on the endogenous entry of bidders in internet auctions. In A. Rapoport & R. Zwick (Eds.), Experimental business research (Vol. II, pp. 103–121). Springer.Google Scholar
  54. Roberts, J., & Sweeting, A. (2013). When should sellers use auctions? American Economic Review, 103(5), 1830–1861.CrossRefGoogle Scholar
  55. Roth, A. (1994). Lets keep the con out of experimental econ.: A methodological note. Empirical Economics, 19(2), 279–89.CrossRefGoogle Scholar
  56. Samuelson, W. (1985). Competitive bidding with entry costs. Economics Letters, 17(1–2), 53–57.CrossRefGoogle Scholar
  57. Smith, J., & Levin, D. (1996). Ranking auctions with risk averse bidders. Journal of Economic Theory, 68(2), 549–561.CrossRefGoogle Scholar
  58. Smith, J., & Levin, D. (2002). Entry coordination in auctions and social welfare: An experimental investigation. International Journal of Game Theory, 30(3), 321–350.CrossRefGoogle Scholar
  59. Stegeman, M. (1996). Participation costs and efficient auctions. Journal of Economic Theory, 71(1), 228–259.CrossRefGoogle Scholar
  60. Tan, G., & Yilankaya, O. (2006). Equilibria in second-price auctions with participation costs. Journal of Economic Theory, 130(1), 205–219.CrossRefGoogle Scholar
  61. Vickrey, W. (1961). Counterspeculation, auctions, and competitive sealed tenders. Journal of Finance, 16(1), 8–37.CrossRefGoogle Scholar
  62. Ye, L. (2004). Optimal auctions with endogenous entry. The BE Journal of Theoretical Economics, 4(1), 8.Google Scholar

Copyright information

© Economic Science Association 2017

Authors and Affiliations

  1. 1.Facultad de EconomíaUniversidad del RodarioBogotáColombia
  2. 2.Department of Economics and FinanceUtah State UniversityLoganUSA

Personalised recommendations