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• Saijo, T
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Games 2011, 2(3), 365-411; doi:10.3390/g2030365

Article

Spite and Reciprocity in Auctions

Naoko Nishimura ¹ , Timothy N. Cason ^2,* , Tatsuyoshi Saijo ^3,4  and Yoshikazu Ikeda ⁵

¹ Department of Economics, Shinshu University, Matsumoto, Nagano 390-8621, Japan ² Department of Economics, Purdue University, West Lafayette, IN 47907-2076, USA ³ ISER, Osaka University, Ibaraki, 567-0047, Japan ⁴ CASSEL, University of California—Los Angeles, Los Angeles, CA 90095-1484, USA ⁵ 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

(This article belongs to the Special Issue Fairness in Games)

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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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