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Spite and Reciprocity in Auctions
Department of Economics, Shinshu University, Matsumoto, Nagano 390-8621, Japan
Department of Economics, Purdue University, West Lafayette, IN 47907-2076, USA
ISER, Osaka University, Ibaraki, 567-0047, Japan
CASSEL, University of California—Los Angeles, Los Angeles, CA 90095-1484, USA
Department of Economics, University of Kitakyushu, Kitakyushu, Fukuoka 802-0841, Japan
* Author to whom correspondence should be addressed.
Received: 1 June 2011; in revised form: 18 July 2011 / Accepted: 30 August 2011 / Published: 16 September 2011
Abstract: The paper presents a complete information model of bidding in second price sealed-bid and ascending-bid (English) auctions, in which potential buyers know the unit valuation of other bidders and may spitefully prefer that their rivals earn a lower surplus. Bidders with spiteful preferences should overbid in equilibrium when they know their rival has a higher value than their own, and bidders with a higher value underbid to reciprocate the spiteful overbidding of the lower value bidders. The model also predicts different bidding behavior in second price as compared to ascending-bid auctions. The paper also presents experimental evidence broadly consistent with the model. In the complete information environment, lower value bidders overbid more than higher value bidders, and they overbid more frequently in the second price auction than in the ascending price auction. Overall, the lower value bidder submits bids that exceed value about half the time. These patterns are not found in the incomplete information environment, consistent with the model.
Keywords: ascending-bid auction; second price auction; experiment; dominant strategy; social preferences; spite; reciprocity; English auction
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MDPI and ACS Style
Nishimura, N.; Cason, T.N.; Saijo, T.; Ikeda, Y. Spite and Reciprocity in Auctions. Games 2011, 2, 365-411.
Nishimura N, Cason TN, Saijo T, Ikeda Y. Spite and Reciprocity in Auctions. Games. 2011; 2(3):365-411.
Nishimura, Naoko; Cason, Timothy N.; Saijo, Tatsuyoshi; Ikeda, Yoshikazu. 2011. "Spite and Reciprocity in Auctions." Games 2, no. 3: 365-411.