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Creating a Winner's Curse via Jump Bids

Ettinger, David; Michelucci, Fabio (2016), Creating a Winner's Curse via Jump Bids, Review of Economic Design, 20, 3, p. 173-186. 10.1007/s10058-016-0187-z

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Type
Article accepté pour publication ou publié
Date
2016
Journal name
Review of Economic Design
Volume
20
Number
3
Publisher
Springer
Pages
173-186
Publication identifier
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Author(s)
Ettinger, David
Laboratoire d'Economie de Dauphine [LEDa]
Michelucci, Fabio
CERGE-EI
Abstract (EN)
We show that jump bids can be used by a bidder to create a winner’s curse and preserve an informational advantage that would otherwise disappear in the course of an open ascending auction. The effect of the winner’s curse is to create allocative distortions and reduce the seller’s expected revenue. Two novel features of equilibrium jump bids are derived. First, the jump bid may fail to hide completely the value of the common value component. Second, a bidder with a higher type might jump bid less frequently than a bidder with a lower type.
Subjects / Keywords
Auctions; Efficiency; Jump bids; Winner’s curse
JEL
D82 - Asymmetric and Private Information; Mechanism Design
D44 - Auctions