Gambling By Auctions

Abstract:     
We provide theoretical and empirical analysis of a selling mechanism used by an Internet web-site that combines important features of auctions and gambling. This is the first analysis of such a selling mechanism, which provides insights into how the two kinds of behavior might be related in real life. The winner of the object is the bidder with the highest bid not submitted by any other bidder. In the equilibrium of our game theoretical model, each bid yields the same probability of winning. Bidders are more likely to submit higher bids, and the bid distribution does not depend on the value of the object or the highest bid allowed if one controls for the number of bidders. These key theoretical predictions are confirmed by the data.

Number of Pages in PDF File: 30

Keywords: auctions, lottery, charity

JEL Classification: D44, C72, C12

working papers series