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The winner’s curse in auctions with losses

Author

Listed:
  • Matteo Migheli

    (University of Torino
    CeRP – Collegio Carlo Alberto)

Abstract

The winner’s curse in auctions might emerge from asymmetric information and/or from some willingness to pay for winning. This article is based on a sealed-bid common value first price auction, with a net loss for the subject with the second highest bid. The results show the existence of a trade-off between the magnitude of the potential loss and the willingness to pay for the victory. In the context of public procurement these results suggest that companies are willing to overpay small contracts to gain a sort of ‘free advertising’, whereas this is not the case when the contracts are large.

Suggested Citation

  • Matteo Migheli, 2017. "The winner’s curse in auctions with losses," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 16(1), pages 113-126, November.
    • Handle: RePEc:spr:minsoc:v:16:y:2017:i:1:d:10.1007_s11299-017-0197-8
    DOI: 10.1007/s11299-017-0197-8
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    References listed on IDEAS

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    More about this item

    Keywords

    Sealed-bid auction; Winner’s curse; Risk; Public procurement;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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