Auctions with endogenous participation and an uncertain number of bidders: experimental evidence
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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.
KeywordsAuctions Revenue equivalence Endogenous entry Experiments Bidding
JEL ClassificationsD44 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.
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