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Identification of first-price auctions with non-equilibrium beliefs: A measurement error approach

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  • An, Yonghong

Abstract

This paper studies identification and estimation of two models for first-price auctions: (1) bidders’ beliefs about their opponents’ bidding behavior are not in equilibrium but follow “level-k” thinking, and (2) bidders’ values are asymmetrically distributed. Exploiting the nonparametric methodology developed for measurement error models (e.g., Hu, 2008), we show that both models can be identified by a unified methodology. The proposed methodology is applied to US Forest Service timber auction data and the estimation results suggest that bidders hold heterogeneous and non-equilibrium beliefs.

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  • An, Yonghong, 2017. "Identification of first-price auctions with non-equilibrium beliefs: A measurement error approach," Journal of Econometrics, Elsevier, vol. 200(2), pages 326-343.
    • Handle: RePEc:eee:econom:v:200:y:2017:i:2:p:326-343
    DOI: 10.1016/j.jeconom.2017.06.014
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    2. Itzhak Rasooly, 2021. "Going... going... wrong: a test of the level-k (and cognitive hierarchy) models of bidding behaviour," Papers 2111.05686, arXiv.org.
    3. An, Yonghong & Hu, Yingyao & Xiao, Ruli, 2021. "Dynamic decisions under subjective expectations: A structural analysis," Journal of Econometrics, Elsevier, vol. 222(1), pages 645-675.
    4. Victor Aguirregabiria & Jihye Jeon, 2020. "Firms’ Beliefs and Learning: Models, Identification, and Empirical Evidence," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 56(2), pages 203-235, March.
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    6. Kojevnikov, Denis & Song, Kyungchul, 2023. "Econometric inference on a large Bayesian game with heterogeneous beliefs," Journal of Econometrics, Elsevier, vol. 237(1).
    7. Victor H. Aguiar & Nail Kashaev, 2019. "Identification and Estimation of Discrete Choice Models with Unobserved Choice Sets," Papers 1907.04853, arXiv.org, revised Jun 2021.
    8. Luo, Yao, 2020. "Unobserved heterogeneity in auctions under restricted stochastic dominance," Journal of Econometrics, Elsevier, vol. 216(2), pages 354-374.
    9. Serafin J. Grundl & Yu Zhu, 2019. "Robust Inference in First-Price Auctions : Experimental Findings as Identifying Restrictions," Finance and Economics Discussion Series 2019-006, Board of Governors of the Federal Reserve System (U.S.).
    10. Itzhak Rasooly, 2022. "Going...going...wrong: a test of the level-k (and cognitive hierarchy) models of bidding behaviour," Economics Series Working Papers 959, University of Oxford, Department of Economics.
    11. Kojevnikov, Denis & Song, Kyungchul, 2023. "Econometric inference on a large bayesian game with heterogeneous beliefs," Other publications TiSEM aca0631e-4f8a-45c7-af3a-4, Tilburg University, School of Economics and Management.
    12. Yao Luo & Ruli Xiao, 2019. "Identification of Auction Models Using Order Statistics," Working Papers tecipa-630, University of Toronto, Department of Economics.
    13. An, Yonghong & Hu, Yingyao & Liu, Pengfei, 2018. "Estimating heterogeneous contributing strategies in threshold public goods provision: A structural analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 152(C), pages 124-146.
    14. Grundl, Serafin & Zhu, Yu, 2023. "Robust inference in first-price auctions: Overbidding as an identifying restriction," Journal of Econometrics, Elsevier, vol. 235(2), pages 484-506.
    15. Gaurab Aryal & Hanna Charankevich & Seungwon Jeong & Dong-Hyuk Kim, 2023. "Procurements with Bidder Asymmetry in Cost and Risk-Aversion," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 41(4), pages 1143-1156, October.
    16. Erhao Xie, 2018. "Inference in Games Without Nash Equilibrium: An Application to Restaurants, Competition in Opening Hours," Staff Working Papers 18-60, Bank of Canada.
    17. Zhou, Hang, 2022. "Informed speculation with k-level reasoning," Journal of Economic Theory, Elsevier, vol. 200(C).
    18. Hu, Yingyao, 2017. "The Econometrics of Unobservables -- Latent Variable and Measurement Error Models and Their Applications in Empirical Industrial Organization and Labor Economics [The Econometrics of Unobservables]," Economics Working Paper Archive 64578, The Johns Hopkins University,Department of Economics, revised 2021.
    19. Luo, Yao & Xiao, Ruli, 2023. "Identification of auction models using order statistics," Journal of Econometrics, Elsevier, vol. 236(1).
    20. Xiaohu Qian & Shu-Cherng Fang & Min Huang & Tiantian Nie & Xingwei Wang, 2019. "Bidding Decisions with Nonequilibrium Strategic Thinking in Reverse Auctions," Group Decision and Negotiation, Springer, vol. 28(4), pages 757-786, August.

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    More about this item

    Keywords

    First-price auctions; Measurement error models; Non-equilibrium beliefs; Asymmetric value distributions; Nonparametric identification and estimation;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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