Why Are Open Ascending Auctions Popular? The Role of Information Aggregation and Behavioral Biases

Tinbergen Institute Discussion Paper 2020-071/I

78 Pages Posted: 7 Dec 2020

See all articles by Theo Offerman

Theo Offerman

University of Amsterdam - Faculty of Economics & Econometrics (FEE)

Giorgia Romagnoli

CREED; Tinbergen Institute

Andreas Ziegler

University of Amsterdam

Date Written: October 8, 2020

Abstract

The popularity of open ascending auctions is often attributed to the fact that openly observable bidding allows to aggregate dispersed information. Another reason behind the frequent utilization of open auction formats may be that they activate revenue enhancing biases. In an experiment, we compare three auctions that differ in how much information is revealed and in the potential activation of behavioral biases: (i) the ascending Vickrey auction, a closed format; and two open formats, (ii) the Japanese-English auction and (iii) the Oral Outcry auction. Even though bidders react to information conveyed in others’ bids, information aggregation fails in both open formats. In contrast, the Oral Outcry raises higher revenue than the other two formats, by stimulating bidders to submit unprofitable jump bids and triggering a quasi-endowment effect.

Keywords: ascending auctions, information aggregation, jump bidding, auction fever

JEL Classification: C90, D44, D82

Suggested Citation

Offerman, Theo and Romagnoli, Giorgia and Ziegler, Andreas, Why Are Open Ascending Auctions Popular? The Role of Information Aggregation and Behavioral Biases (October 8, 2020). Tinbergen Institute Discussion Paper 2020-071/I, Available at SSRN: https://ssrn.com/abstract=3710800 or http://dx.doi.org/10.2139/ssrn.3710800

Theo Offerman (Contact Author)

University of Amsterdam - Faculty of Economics & Econometrics (FEE) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4294 (Phone)
+31 20 525 5283 (Fax)

Giorgia Romagnoli

CREED ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Andreas Ziegler

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

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