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Not knowing the competition: evidence and implications for auction design

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  • Yunmi Kong

Abstract

In a government auction program where first‐price auctions generate significantly higher revenue than English auctions, I document evidence that bidders are uncertain about the number of auction entrants. Motivated by additional data evidence, I estimate a structural model of auctions in which rivals' participation is stochastic, allowing for bidders' risk aversion and asymmetry. Counterfactual simulations reveal that bidders' uncertainty about the number of entrants, combined with risk aversion, substantially softens the revenue impact of low competition in first‐price auctions. This explains the observed revenue patterns and uncovers an empirically important reason for sellers to favor first‐price auctions over English auctions.

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  • Yunmi Kong, 2020. "Not knowing the competition: evidence and implications for auction design," RAND Journal of Economics, RAND Corporation, vol. 51(3), pages 840-867, September.
    • Handle: RePEc:bla:randje:v:51:y:2020:i:3:p:840-867
    DOI: 10.1111/1756-2171.12342
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    References listed on IDEAS

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    Cited by:

    1. Vasserman, Shoshana & Watt, Mitchell, 2021. "Risk aversion and auction design: Theoretical and empirical evidence," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    2. Samuel Häfner, 2023. "Risk aversion in share auctions: Estimating import rents from TRQs in Switzerland," Quantitative Economics, Econometric Society, vol. 14(2), pages 419-470, May.
    3. Yao Luo & Peijun Sang & Ruli Xiao, 2024. "Order Statistics Approaches to Unobserved Heterogeneity in Auctions," Working Papers tecipa-776, University of Toronto, Department of Economics.
    4. Valentin Bolotnyy & Shoshana Vasserman, 2023. "Scaling Auctions as Insurance: A Case Study in Infrastructure Procurement," Econometrica, Econometric Society, vol. 91(4), pages 1205-1259, July.
    5. Kong, Yunmi, 2022. "Identification of English auctions when losing entrants are not observed," International Journal of Industrial Organization, Elsevier, vol. 85(C).
    6. Yao Luo & Peijun Sang & Ruli Xiao, 2022. "Order Statistics Approaches to Unobserved Heterogeneity in Auctions," Papers 2210.03547, arXiv.org.
    7. Yunmi Kong & Isabelle Perrigne & Quang Vuong, 2022. "Multidimensional Auctions of Contracts: An Empirical Analysis," American Economic Review, American Economic Association, vol. 112(5), pages 1703-1736, May.
    8. Thomas R. Covert & Richard L. Sweeney, 2023. "Relinquishing Riches: Auctions versus Informal Negotiations in Texas Oil and Gas Leasing," American Economic Review, American Economic Association, vol. 113(3), pages 628-663, March.

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