The Losers Bliss in Auctions with Price Externality

Games 2015, 6, 191-213

23 Pages Posted: 4 Jul 2015

See all articles by Ernan Haruvy

Ernan Haruvy

University of Texas at Dallas - Naveen Jindal School of Management

Peter T. L. Popkowski Leszczyc

University of Queensland - Business School

Date Written: July 3, 2015

Abstract

We consider auctions with price externality where all bidders derive utility from the winning price, such as charity auctions. In addition to the benefit to the winning bidder, all bidders obtain a benefit that is increasing in the winning price. Theory makes two predictions in such settings: First, individual bids will be increasing in the multiplier on the winning price. Second, individual bids will not depend on the number of other bidders. Empirically, we find no evidence that increasing the multiplier increases individual bids in a systematic way, but we find that increasing the number of bidders does. An analysis of individual bidding functions reveals that bidders underweight the incentives to win and overweight the incentives to lose.

Keywords: auctions with price externality, bidder aggression, underbidding, experiments

Suggested Citation

Haruvy, Ernan and Popkowski Leszczyc, Peter T. L., The Losers Bliss in Auctions with Price Externality (July 3, 2015). Games 2015, 6, 191-213. Available at SSRN: https://ssrn.com/abstract=2626510

Ernan Haruvy

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

Peter T. L. Popkowski Leszczyc (Contact Author)

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

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