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Does the absence of human sellers bias bidding behavior in auction experiments?

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Listed:
  • Björn Bartling

    (University of Zurich)

  • Tobias Gesche

    (University College London)

  • Nick Netzer

    (University of Zurich)

Abstract

This paper studies the impact of human subjects in the role of a seller on bidding in experimental second-price auctions. Overbidding is a robust finding in second-price auctions, and spite among bidders has been advanced as an explanation. If spite extends to the seller, then the absence of human sellers who receive the auction revenue may bias upwards the bidding behavior in existing experimental auctions. We derive the equilibrium bidding function in a model where bidders have preferences regarding both the payoffs of other bidders and the seller’s revenue. Overbidding is optimal when buyers are spiteful only towards other buyers. However, optimal bids are lower and potentially even truthful when spite extends to the seller. We experimentally test the model predictions by exogenously varying the presence of human subjects in the roles of the seller and competing bidders. We do not detect a systematic effect of the presence of a human seller on overbidding. We conclude that overbidding is not an artefact of the standard experimental implementation of second-price auctions in which human sellers are absent.

Suggested Citation

  • Björn Bartling & Tobias Gesche & Nick Netzer, 2017. "Does the absence of human sellers bias bidding behavior in auction experiments?," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 3(1), pages 44-61, July.
    • Handle: RePEc:spr:jesaex:v:3:y:2017:i:1:d:10.1007_s40881-017-0037-y
    DOI: 10.1007/s40881-017-0037-y
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    3. Wladislaw Mill & Jonathan Stäbler, 2023. "Spite in Litigation," CESifo Working Paper Series 10290, CESifo.
    4. Oliver Kirchkamp & Wladislaw Mill, 2019. "Spite vs. risk: explaining overbidding," CESifo Working Paper Series 7631, CESifo.
    5. Ahrash Dianat & Mikhail Freer, 2021. "Credibility in Second-Price Auctions: An Experimental Test," Papers 2105.00204, arXiv.org, revised Jan 2023.
    6. Kirchkamp, Oliver & Mill, Wladislaw, 2021. "Spite vs. risk: Explaining overbidding in the second-price all-pay auction," Games and Economic Behavior, Elsevier, vol. 130(C), pages 616-635.
    7. Mill, Wladislaw, 2017. "The spite motive in third price auctions," Economics Letters, Elsevier, vol. 161(C), pages 71-73.
    8. 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.
    9. Mill, Wladislaw & Morgan, John, 2022. "Competition between friends and foes," European Economic Review, Elsevier, vol. 147(C).

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    More about this item

    Keywords

    Second-price auction; Spite; Overbidding; Lab experiments; External validity;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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