Nonparametric Tests for Common Values in Fixed-Price Sealed-Bid Auctions

67 Pages Posted: 19 Mar 2004

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: December 2004

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.

Keywords: First-price auctions, Common values, Private values, Nonparametric testing, Winner's curse, Stochastic dominance, Endogenous participation, Timber auctions

JEL Classification: D4, D8, L1, C1, Q2, C14, D44

Suggested Citation

Haile, Philip A. and Hong, Han and Shum, Matthew, Nonparametric Tests for Common Values in Fixed-Price Sealed-Bid Auctions (December 2004). Available at SSRN: https://ssrn.com/abstract=519105

Philip A. Haile (Contact Author)

Yale University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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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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Baltimore, MD 21218-2685
United States
410-516-8828 (Phone)

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

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