Gambling By Auctions

30 Pages Posted: 1 Jun 2006  

Yaron Raviv

Claremont McKenna College - Robert Day School of Economics and Finance

Gabor Virag

Rotman School of Management

Date Written: April 17, 2007

Abstract

We provide theoretical and empirical analysis of a selling mechanism used by an Internet web-site that combines important features of auctions and gambling. This is the first analysis of such a selling mechanism, which provides insights into how the two kinds of behavior might be related in real life. The winner of the object is the bidder with the highest bid not submitted by any other bidder. In the equilibrium of our game theoretical model, each bid yields the same probability of winning. Bidders are more likely to submit higher bids, and the bid distribution does not depend on the value of the object or the highest bid allowed if one controls for the number of bidders. These key theoretical predictions are confirmed by the data.

Keywords: auctions, lottery, charity

JEL Classification: D44, C72, C12

Suggested Citation

Raviv, Yaron and Virag, Gabor, Gambling By Auctions (April 17, 2007). Available at SSRN: https://ssrn.com/abstract=905606 or http://dx.doi.org/10.2139/ssrn.905606

Yaron Raviv (Contact Author)

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States
909-607-7305 (Phone)

Gabor Virag

Rotman School of Management ( email )

Department of Statistical Sciences
Toronto, Ontario M5S 3G8
Canada
416-978-4423 (Phone)

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