Auctions and Leaks: A Theoretical and Experimental Investigation

31 Pages Posted: 21 Sep 2017

See all articles by Sven Fischer

Sven Fischer

University of Newcastle - Economics

Werner Guth

Max Planck Institute of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Todd R. Kaplan

University of Exeter Business School - Department of Economics; University of Haifa - Department of Economics

Ro'i Zultan

Ben-Gurion University of the Negev

Date Written: September 20, 2017

Abstract

In first- and second-price private value auctions with sequential bidding, second movers may discover the first movers' bid. Equilibrium behavior in the first-price auction is mostly unaffected but there are multiple equilibria in the second-price auction. Consequently, comparative statics across price rules are equivocal. Experimentally, leaks in the first-price auction favor second movers but harm first movers and sellers, as theoretically predicted. Low to medium leak probabilities eliminate the usual revenue dominance of first- over second-price auctions. With a high leak probability, second-price auctions generate significantly more revenue.

Keywords: auction, espionage, collusion, laboratory experiment.

JEL Classification: C72, C91, D44

Suggested Citation

Fischer, Sven and Güth, Werner and Kaplan, Todd R. and Zultan, Ro'i, Auctions and Leaks: A Theoretical and Experimental Investigation (September 20, 2017). Available at SSRN: https://ssrn.com/abstract=3040075 or http://dx.doi.org/10.2139/ssrn.3040075

Sven Fischer (Contact Author)

University of Newcastle - Economics ( email )

Newcastle-upon-Tyne NE1 7RU
United Kingdom

Werner Güth

Max Planck Institute of Economics ( email )

Kahlaische Strasse 10
D-07745 Jena, 07745
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Todd R. Kaplan

University of Exeter Business School - Department of Economics ( email )

Streatham Court
Exeter, EX4 4RJ
United Kingdom
+44 13 9226 3237 (Phone)

University of Haifa - Department of Economics

Haifa 31905
Israel

Ro'i Zultan

Ben-Gurion University of the Negev ( email )

1 Ben-Gurion Blvd
Beer-Sheba 84105, 84105
Israel

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