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Credibility in second-price auctions: an experimental test

Author

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  • Ahrash Dianat

    (University of Essex)

  • Mikhail Freer

    (University of Essex)

Abstract

We provide the first direct test of how the credibility of an auction format affects bidding behavior and final outcomes. To do so, we conduct a series of laboratory experiments where the role of the seller is played by a human subject who receives the revenue from the auction and who (depending on the treatment) has agency to determine the outcome of the auction. Contrary to theoretical predictions, we find that the non-credible second-price auction fails to converge to the first-price auction. We provide a behavioral explanation for our results based on sellers’ aversion to rule-breaking, which is confirmed by an additional experiment.

Suggested Citation

  • Ahrash Dianat & Mikhail Freer, 2024. "Credibility in second-price auctions: an experimental test," Experimental Economics, Springer;Economic Science Association, vol. 27(1), pages 58-79, March.
    • Handle: RePEc:kap:expeco:v:27:y:2024:i:1:d:10.1007_s10683-023-09802-0
    DOI: 10.1007/s10683-023-09802-0
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    References listed on IDEAS

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    More about this item

    Keywords

    Auctions; Mechanism design; Experiments;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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