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Second‐Price Auctions with Asymmetric Payoffs: An Experimental Investigation

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  • Christopher Avery
  • John H. Kagel

Abstract

A series of two‐player, second‐price common‐value auctions are reported. In symmetric auctions, bidders suffer from a winner's curse. In asymmetric auctions in which one bidder has a private value advantage, the effect on bids and prices is proportional rather than explosive (the prediction of Nash equilibrium bidding theory). Although advantaged bidders are close to making best responses to disadvantaged bidders, the latter bid much more aggressively than in equilibrium, thereby earning negative average profits. Experienced bidders consistently bid closer to the Nash equilibrium than inexperienced bidders, although these adjustments towards equilibrium are small and at times uneven.

Suggested Citation

  • Christopher Avery & John H. Kagel, 1997. "Second‐Price Auctions with Asymmetric Payoffs: An Experimental Investigation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(3), pages 573-603, September.
    • Handle: RePEc:bla:jemstr:v:6:y:1997:i:3:p:573-603
    DOI: 10.1111/j.1430-9134.1997.00573.x
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    References listed on IDEAS

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