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Learning by bidding

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  • Tanjim Hossain

Abstract

We analyze a dynamic second‐price auction with an informed bidder and an uninformed bidder who, upon seeing a posted price, learns whether his valuation is above that price. In the essentially unique equilibrium, an informed bidder bids in the first period if her valuation is below some cutoff and bids only in the last period otherwise. An uninformed bidder bids in every period to optimally change the price unless the price is above his valuation or he is the high bidder. This model also provides a rationale behind the use of a secret reserve price in private‐value settings.

Suggested Citation

  • Tanjim Hossain, 2008. "Learning by bidding," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 509-529, June.
    • Handle: RePEc:bla:randje:v:39:y:2008:i:2:p:509-529
    DOI: 10.1111/j.0741-6261.2008.00025.x
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    References listed on IDEAS

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    1. Hossain Tanjim & Morgan John, 2006. "...Plus Shipping and Handling: Revenue (Non) Equivalence in Field Experiments on eBay," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 6(2), pages 1-30, January.
    2. Dan Ariely & Axel Ockenfels & Alvin E. Roth, 2005. "An Experimental Analysis of Ending Rules in Internet Auctions," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 890-907, Winter.
    3. Jeffrey C. Ely & Tanjim Hossain, 2009. "Sniping and Squatting in Auction Markets," American Economic Journal: Microeconomics, American Economic Association, vol. 1(2), pages 68-94, August.
    4. Rasmusen Eric Bennett, 2006. "Strategic Implications of Uncertainty over One's Own Private Value in Auctions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-24, November.
    5. Bajari, Patrick & Hortacsu, Ali, 2003. "The Winner's Curse, Reserve Prices, and Endogenous Entry: Empirical Insights from eBay Auctions," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 329-355, Summer.
    6. Olivier Compte & Philippe Jehiel, 2004. "The Wait-and-See Option in Ascending Price Auctions," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 494-503, 04/05.
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