Nonparametric Tests for Common Values at First-Price Sealed-Bid Auctions

58 Pages Posted: 19 Nov 2003 Last revised: 13 Aug 2022

See all articles by Philip A. Haile

Philip A. Haile

Yale University - Department of Economics; National Bureau of Economic Research (NBER); Yale University - Cowles Foundation

Han Hong

Independent

Matthew Shum

Johns Hopkins University - Department of Economics

Date Written: November 2003

Abstract

We develop tests for common values at first-price sealed-bid auctions. Our tests are nonparametric, require observation only of the bids submitted at each auction, and are based on the fact that the winner's curse' arises only in common values auctions. The tests build on recently developed methods for using observed bids to estimate each bidder's conditional expectation of the value of winning the auction. Equilibrium behavior implies that in a private values auction these expectations are invariant to the number of opponents each bidder faces, while with common values they are decreasing in the number of opponents. This distinction forms the basis of our tests. We consider both exogenous and endogenous variation in the number of bidders. Monte Carlo experiments show that our tests can perform well in samples of moderate sizes. We apply our tests to two different types of U.S. Forest Service timber auctions. For unit-price ( scaled') sales often argued to fit a private values model, our tests consistently fail to find evidence of common values. For lumpsum' sales, where a priori arguments for common values appear stronger, our tests yield mixed evidence against the private values hypothesis.

Suggested Citation

Haile, Philip A. and Hong, Han and Shum, Matthew, Nonparametric Tests for Common Values at First-Price Sealed-Bid Auctions (November 2003). NBER Working Paper No. w10105, Available at SSRN: https://ssrn.com/abstract=468792

Philip A. Haile (Contact Author)

Yale University - Department of Economics ( email )

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Yale University - Cowles Foundation

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Han Hong

Independent

Matthew Shum

Johns Hopkins University - Department of Economics ( email )

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HOME PAGE: http://www.econ.jhu.edu/people/shum/