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Dr. Rimvydas Baltaduonis: “Valuation Structure in First-Price and Least-Revenue Auctions: An Experimental Investigation”

Dr. Rimvydas Baltaduonis

Gettysburg College, Pennsylvania, USA

Authors: Diego Aycinena, Rimvydas Baltaduonis, and Lucas Rentschler

Abstract: 

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 In many auctions the valuation structure involves both private and

common value elements. Existing experimental evidence (e.g. Goeree and Of-

ferman (2002)) demonstrates that _rst-price auctions with this valuation struc-

ture tend to be ine_cient, and inexperienced subjects tend to bid naively and

fall prey to the winner's curse. In this paper, we compare _rst-price auctions

with an alternative auction mechanism: the least-revenue auction. This auction

mechanism shifts the risk regarding the common value of the good to the auc-

tioneer. Such a shift is desirable when ex post negative payo_s for the winning

bidder results in unful_lled contracts, as is often the case in infrastructure con-

cessions contracts. We directly these two auction formats within two valuation

structures: 1) pure common value and 2) common value with a private cost.

We _nd that, relative to _rst-price auctions, the winner's curse is signi_cantly

less prevalent in least-revenue auctions regardless of valuation structure. As a

result revenue in _rst-price auctions is higher than in least-revenue auctions,

contrary to theory. Further, when there are private and common value com-

ponents, least-revenue auctions are signi_cantly more e_cient than _rst-price

auctions.

Full Text: “Valuation Structure in First-Price and Least-Revenue Auctions: An Experimental Investigation”