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Cheating in Second Price Auctions and Emotional Responses

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  • Sharma, Shashidharan

Abstract

This paper aims to address a gap in literature at the intersection of cheating in auctions and emotional responses. In a second price auction with a cheating seller, we model the bidder's dislike for the possibility of cheating by drawing upon the idea of reference point-based utility. A symmetric increasing equilibrium strategy is characterised and comparative statics are analysed. A comparison of expected payoffs to honest and dishonest sellers is made. We find that if reference points are low enough then the cheating seller's payoff is lower than what a seller earns in a regular first-price auction. Our results show that even with bidders disliking cheating, honest sellers lose out due to bidders shading their bids to accommodate for the possibility of being cheated.

Suggested Citation

  • Sharma, Shashidharan, 2022. "Cheating in Second Price Auctions and Emotional Responses," MPRA Paper 121492, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:121492
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    File URL: https://mpra.ub.uni-muenchen.de/121492/1/MPRA_paper_121492.pdf
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    More about this item

    Keywords

    Second Price Auctions; Reference Dependence; Emotional Responses;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other

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