[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/tin/wpaper/20170053.html
   My bibliography  Save this paper

Signaling in Auctions: Experimental Evidence

Author

Listed:
  • Olivier Bos
  • Francisco Gomez-Martinez

    (Universidad Carlos III de Madrid, Spain)

  • Sander Onderstal

    (University of Amsterdam and Tinbergen Institute, The Netherlands)

  • Tom Truyts

    (Saint-Louis University Brussels and University of Leuven, Belgium)

Abstract
We study the relative performance of the first-price sealed-bid auction and the second-price sealed-bid auction in a laboratory experiment where bidders can signal information through their bidding behavior to an outside observer. We consider two different information settings: the auctioneer reveals either the identity of the winning bidder only, or she also reveals the winner’s payment to an outside observer. We find that the first-price sealed-bid auction in which the winner’s payment is revealed outperforms the other mechanisms in terms of revenue and efficiency. Our findings may have implications for the design of charity auctions, art auctions, and spectrum auctions.

Suggested Citation

  • Olivier Bos & Francisco Gomez-Martinez & Sander Onderstal & Tom Truyts, 2017. "Signaling in Auctions: Experimental Evidence," Tinbergen Institute Discussion Papers 17-053/VII, Tinbergen Institute, revised 07 Jul 2017.
    • Handle: RePEc:tin:wpaper:20170053
    as

    Download full text from publisher

    File URL: https://papers.tinbergen.nl/17053.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Amihai Glazer & Kai A. Konrad, 2008. "A Signaling Explanation for Charity," Springer Books, in: Roger D. Congleton & Kai A. Konrad & Arye L. Hillman (ed.), 40 Years of Research on Rent Seeking 2, pages 713-722, Springer.
    2. Carpenter, Jeffrey & Holmes, Jessica & Matthews, Peter Hans, 2010. "Endogenous participation in charity auctions," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 921-935, December.
    3. Krishna, Vijay, 2009. "Auction Theory," Elsevier Monographs, Elsevier, edition 2, number 9780123745071.
    4. Arthur J.H.C. Schram & Sander Onderstal, 2009. "Bidding To Give: An Experimental Comparison Of Auctions For Charity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(2), pages 431-457, May.
    5. Olivier Bos & Tom Truyts, 2021. "Auctions with signaling concerns," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(2), pages 420-448, May.
    6. Kagel, John H & Levin, Dan, 1993. "Independent Private Value Auctions: Bidder Behaviour in First-, Second- and Third-Price Auctions with Varying Numbers of Bidders," Economic Journal, Royal Economic Society, vol. 103(419), pages 868-879, July.
    7. Haile, Philip A., 2003. "Auctions with private uncertainty and resale opportunities," Journal of Economic Theory, Elsevier, vol. 108(1), pages 72-110, January.
    8. Andreoni, James & Che, Yeon-Koo & Kim, Jinwoo, 2007. "Asymmetric information about rivals' types in standard auctions: An experiment," Games and Economic Behavior, Elsevier, vol. 59(2), pages 240-259, May.
    9. Bos, Olivier, 2011. "How lotteries outperform auctions," Economics Letters, Elsevier, vol. 110(3), pages 262-264, March.
    10. Marinovic, Ivan, 2014. "Delegated Bidding and the Allocative Effects of Alternative Accounting Rules," Research Papers 3251, Stanford University, Graduate School of Business.
    11. Neugebauer, Tibor & Selten, Reinhard, 2006. "Individual behavior of first-price auctions: The importance of information feedback in computerized experimental markets," Games and Economic Behavior, Elsevier, vol. 54(1), pages 183-204, January.
    12. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    13. James Andreoni & B. Douglas Bernheim, 2009. "Social Image and the 50-50 Norm: A Theoretical and Experimental Analysis of Audience Effects," Econometrica, Econometric Society, vol. 77(5), pages 1607-1636, September.
    14. Jeitschko, Thomas D. & Normann, Hans-Theo, 2012. "Signaling in deterministic and stochastic settings," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 39-55.
    15. Drouvelis, Michalis & Müller, Wieland & Possajennikov, Alex, 2012. "Signaling without a common prior: Results on experimental equilibrium selection," Games and Economic Behavior, Elsevier, vol. 74(1), pages 102-119.
    16. Dufwenberg, Martin & Gneezy, Uri, 2002. "Information disclosure in auctions: an experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 48(4), pages 431-444, August.
    17. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, March.
    18. Theo Offerman, 2002. "Efficiency in Auctions with Private and Common Values: An Experimental Study," American Economic Review, American Economic Association, vol. 92(3), pages 625-643, June.
    19. Molnár, József & Virág, Gábor, 2008. "Revenue maximizing auctions with market interaction and signaling," Economics Letters, Elsevier, vol. 99(2), pages 360-363, May.
    20. Brandts, Jordi & Holt, Charles A, 1993. "Adjustment Patterns and Equilibrium Selection in Experimental Signaling Games," International Journal of Game Theory, Springer;Game Theory Society, vol. 22(3), pages 279-302.
    21. Riley, John G, 1989. "Expected Revenue from Open and Sealed Bid Auctions," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 41-50, Summer.
    22. Francesco Giovannoni & Miltiadis Makris, 2014. "Reputational Bidding," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 693-710, August.
    23. Jacob K. Goeree & Emiel Maasland & Sander Onderstal & John L. Turner, 2005. "How (Not) to Raise Money," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 897-926, August.
    24. Jeffrey Carpenter & Jessica Holmes & PeterHans Matthews, 2008. "Charity auctions: a field experiment," Economic Journal, Royal Economic Society, vol. 118(525), pages 92-113, January.
    25. Goeree, Jacob K., 2003. "Bidding for the future: signaling in auctions with an aftermarket," Journal of Economic Theory, Elsevier, vol. 108(2), pages 345-364, February.
    26. Harbaugh, William T., 1998. "What do donations buy?: A model of philanthropy based on prestige and warm glow," Journal of Public Economics, Elsevier, vol. 67(2), pages 269-284, February.
    27. Francesco Giovannoni & Miltiadis Makris, 2014. "Reputational Bidding," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(3), pages 693-710, August.
    28. Das Varma, Gopal, 2003. "Bidding for a process innovation under alternative modes of competition," International Journal of Industrial Organization, Elsevier, vol. 21(1), pages 15-37, January.
    29. Harbaugh, William T, 1998. "The Prestige Motive for Making Charitable Transfers," American Economic Review, American Economic Association, vol. 88(2), pages 277-282, May.
    30. Timothy N. Cason & Karthik N. Kannan & Ralph Siebert, 2011. "An Experimental Study of Information Revelation Policies in Sequential Auctions," Management Science, INFORMS, vol. 57(4), pages 667-688, April.
    31. Miguel A. Fonseca & Francesco Giovannoni & Miltiadis Makris, 2020. "Auctions with external incentives: experimental evidence," International Journal of Game Theory, Springer;Game Theory Society, vol. 49(4), pages 1003-1043, December.
    32. Banks, Jeffrey S & Sobel, Joel, 1987. "Equilibrium Selection in Signaling Games," Econometrica, Econometric Society, vol. 55(3), pages 647-661, May.
    33. Tingjun Liu, 2012. "Takeover Bidding with Signaling Incentives," The Review of Financial Studies, Society for Financial Studies, vol. 25(2), pages 522-556.
    34. Theodore L. Turocy, 2009. "Covering Your Posterior: Teaching Signaling Games Using Classroom Experiments," The Journal of Economic Education, Taylor & Francis Journals, vol. 40(2), pages 188-199, April.
    35. Wieland Müller & Andrew Schotter, 2010. "Workaholics and Dropouts in Organizations," Journal of the European Economic Association, MIT Press, vol. 8(4), pages 717-743, June.
    36. Benjamin R. Mandel, 2009. "Art as an Investment and Conspicuous Consumption Good," American Economic Review, American Economic Association, vol. 99(4), pages 1653-1663, September.
    37. Onderstal, Sander & Schram, Arthur J.H.C. & Soetevent, Adriaan R., 2013. "Bidding to give in the field," Journal of Public Economics, Elsevier, vol. 105(C), pages 72-85.
    38. de Haan, Thomas & Offerman, Theo & Sloof, Randolph, 2011. "Noisy signaling: Theory and experiment," Games and Economic Behavior, Elsevier, vol. 73(2), pages 402-428.
    39. Noussair, Charles & Silver, Jonathon, 2006. "Behavior in all-pay auctions with incomplete information," Games and Economic Behavior, Elsevier, vol. 55(1), pages 189-206, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Miguel A. Fonseca & Francesco Giovannoni & Miltiadis Makris, 2020. "Auctions with external incentives: experimental evidence," International Journal of Game Theory, Springer;Game Theory Society, vol. 49(4), pages 1003-1043, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Olivier Bos & Tom Truyts, 2021. "Auctions with signaling concerns," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(2), pages 420-448, May.
    2. Olivier Bos & Tom Truyts, 2023. "Entry in first-price auctions with signaling," International Journal of Game Theory, Springer;Game Theory Society, vol. 52(2), pages 423-450, June.
    3. Kaplan, Todd R. & Zamir, Shmuel, 2015. "Advances in Auctions," Handbook of Game Theory with Economic Applications,, Elsevier.
    4. Cho, Myeonghwan & Song, Joon, 2022. "Auctioning business licenses to engage in Cournot competition," Economics Letters, Elsevier, vol. 210(C).
    5. Emmanuel Dechenaux & Dan Kovenock & Roman Sheremeta, 2015. "A survey of experimental research on contests, all-pay auctions and tournaments," Experimental Economics, Springer;Economic Science Association, vol. 18(4), pages 609-669, December.
    6. Foster, Joshua & Haley, M. Ryan, 2022. "Charity auctions as assets: Theory and simulations of fundraising risk management in mean-variance space," Socio-Economic Planning Sciences, Elsevier, vol. 83(C).
    7. Bos, Olivier, 2016. "Charity auctions for the happy few," Mathematical Social Sciences, Elsevier, vol. 79(C), pages 83-92.
    8. Onderstal, Sander & Schram, Arthur J.H.C. & Soetevent, Adriaan R., 2013. "Bidding to give in the field," Journal of Public Economics, Elsevier, vol. 105(C), pages 72-85.
    9. Damian S. Damianov & Ronald Peeters, 2018. "Prize‐Based Mechanisms For Fund‐Raising: Theory And Experiments," Economic Inquiry, Western Economic Association International, vol. 56(3), pages 1562-1584, July.
    10. Miguel A. Fonseca & Francesco Giovannoni & Miltiadis Makris, 2020. "Auctions with external incentives: experimental evidence," International Journal of Game Theory, Springer;Game Theory Society, vol. 49(4), pages 1003-1043, December.
    11. Onderstal, Sander & Schram, Arthur J.H.C. & Soetevent, Adriaan R., 2014. "Reprint of: Bidding to give in the field," Journal of Public Economics, Elsevier, vol. 114(C), pages 87-100.
    12. James Andreoni & Andy Brownback, 2014. "Grading on a Curve, and other Effects of Group Size on All-Pay Auctions," NBER Working Papers 20184, National Bureau of Economic Research, Inc.
    13. Sander Onderstal & Arthur J.C. Schram & Adriaan R. Soetevent, 2011. "Bidding to give in the Field: Door-to-Door Fundraisers had it right from the Start," Tinbergen Institute Discussion Papers 11-070/1, Tinbergen Institute, revised 10 Nov 2011.
    14. Olivier Bos, 2020. "Charitable asymmetric bidders," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(2), pages 320-337, April.
    15. Sascha Füllbrunn & Tibor Neugebauer, 2013. "Varying the number of bidders in the first-price sealed-bid auction: experimental evidence for the one-shot game," Theory and Decision, Springer, vol. 75(3), pages 421-447, September.
    16. Duffy, John & Kornienko, Tatiana, 2010. "Does competition affect giving?," Journal of Economic Behavior & Organization, Elsevier, vol. 74(1-2), pages 82-103, May.
    17. Lorentziadis, Panos L., 2016. "Optimal bidding in auctions from a game theory perspective," European Journal of Operational Research, Elsevier, vol. 248(2), pages 347-371.
    18. Jibang Wu & Ashwinkumar Badanidiyuru & Haifeng Xu, 2021. "Auctioning with Strategically Reticent Bidders," Papers 2109.04888, arXiv.org, revised Jan 2023.
    19. Wang, Dazhong & Xu, Xinyi & Zeng, Xianjie, 2023. "Comparisons of standard royalty auctions with seller post-auction effort," Journal of Mathematical Economics, Elsevier, vol. 107(C).
    20. Paul Pezanis-Christou & Hang Wu, 2018. "A non-game-theoretic approach to bidding in first-price and all-pay auctions," School of Economics and Public Policy Working Papers 2018-12, University of Adelaide, School of Economics and Public Policy.

    More about this item

    Keywords

    Auctions; Signaling; Experiments;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tin:wpaper:20170053. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tinbergen Office +31 (0)10-4088900 (email available below). General contact details of provider: https://edirc.repec.org/data/tinbenl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.