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The effect of shill bidding upon prices: Experimental evidence

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  • Kosmopoulou, Georgia
  • De Silva, Dakshina G.

Abstract

This paper explores, through a series of experiments, the effect of shill bidding upon revenues and prices in auctions. We study the practice of shill bidding in a common value framework. Our findings are consistent with the theoretical prediction that, if bidders are aware of the possibility of seller participation in an auction, shill bidding lowers profits on average. Shill bidding can alleviate the problem of the winner's curse by lowering the price and it can, thus, provide benefits to the bidders. Finally, even though there were too many bidders that submitted bids in these auctions, the number of entrants was not affected by the possibility of seller participation, which is also consistent with the theory.
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  • Kosmopoulou, Georgia & De Silva, Dakshina G., 2007. "The effect of shill bidding upon prices: Experimental evidence," International Journal of Industrial Organization, Elsevier, vol. 25(2), pages 291-313, April.
    • Handle: RePEc:eee:indorg:v:25:y:2007:i:2:p:291-313
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    Cited by:

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    3. Lorentziadis, Panos L., 2016. "Optimal bidding in auctions from a game theory perspective," European Journal of Operational Research, Elsevier, vol. 248(2), pages 347-371.
    4. Herzog, Dominic, 2014. "Shill Bidder's Behavior in a Second-Price Online Auction," Working papers 2014/03, Faculty of Business and Economics - University of Basel.
    5. Kwang Mong Sim, 2024. "A Strongly Group Strategyproof and Shill Resistant Bargaining Mechanism for Fog Resource Pricing," Dynamic Games and Applications, Springer, vol. 14(5), pages 1238-1267, November.
    6. McCannon, Bryan C. & Minuci, Eduardo, 2020. "Shill bidding and trust," Journal of Behavioral and Experimental Finance, Elsevier, vol. 26(C).
    7. Vasilis Syrgkanis & David Kempe & Eva Tardos, 2019. "Information Asymmetries in Common-Value Auctions with Discrete Signals," Management Science, INFORMS, vol. 44(4), pages 1450-1476, November.
    8. Nikitkov, Alexey & Bay, Darlene, 2015. "Shill bidding: Empirical evidence of its effectiveness and likelihood of detection in online auction systems," International Journal of Accounting Information Systems, Elsevier, vol. 16(C), pages 42-54.
    9. Ingebretsen Carlson, Jim & Wu, Tingting, 2022. "Shill bidding and information in eBay auctions: A Laboratory study," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 341-360.
    10. Axel Ockenfels & David Reiley & Abdolkarim Sadrieh, 2006. "Online Auctions," NBER Working Papers 12785, National Bureau of Economic Research, Inc.
    11. Ingebretsen Carlson, Jim & Wu, Tingting, 2018. "Shill Bidding and Information in Sequential Auctions: A Laboratory Study," Working Papers 2018:18, Lund University, Department of Economics.
    12. Coatney, Kalyn & Harri, Ardian, 2015. "Auctioneer Versus a Dominant Bidder: Evidence from a Cattle Auction," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 207368, Agricultural and Applied Economics Association.
    13. Tim Hoppe & Abdolkarim Sadrieh, 2007. "An Experimental Assessment of Confederate Reserve Price Bids in Online Auction," FEMM Working Papers 07011, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    14. David Grether & David Porter & Matthew Shum, 2015. "Cyber-Shilling in Automobile Auctions: Evidence from a Field Experiment," American Economic Journal: Microeconomics, American Economic Association, vol. 7(3), pages 85-103, August.

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    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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