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Games 2018, 9(1), 15; https://doi.org/10.3390/g9010015

Sequential Auctions with Capacity Constraints: An Experimental Investigation

1
Departamento de Economía Aplicada I, Universidad Rey Juan Carlos, Paseo Artilleros s/n, 28032 Madrid, Spain
2
Department of Economics, University of Southern California, 3620 South Vermont Ave. Kaprielian (KAP) Hall, 300 Los Angeles, CA 90089-0253, USA
*
Author to whom correspondence should be addressed.
Received: 13 November 2017 / Revised: 19 February 2018 / Accepted: 28 February 2018 / Published: 12 March 2018
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Abstract

We conduct a laboratory experiment where groups of 4 subjects constrained to obtain at most one good each, sequentially bid for three goods in first and second price auctions. Subjects learn at the beginning of each auction their valuation for the good and exit the auction once they have obtained one good. We show that, contrary to equilibrium predictions, subjects’ bidding behavior is excessively similar across units and across mechanisms at the aggregate level. We provide two (complementary) explanations for these departures. One is bounded rationality. Subjects do not fully comprehend subtle differences between mechanisms. The other is self-selection. Subjects are very heterogeneous and some of them deviate more from equilibrium than others. Since deviations take mostly the form of overbidding, these subjects win the first or second good and exit the auction, leaving those who play closer to theoretical predictions to bid for the third good. Support for this hypothesis comes from the documented higher bidding, lower efficiency and lower profits associated with the first and second unit compared to the third one. View Full-Text
Keywords: sequential auctions; capacity constraints; selection; overbidding; laboratory experiment sequential auctions; capacity constraints; selection; overbidding; laboratory experiment
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
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Otamendi, F.J.; Brocas, I.; Carrillo, J.D. Sequential Auctions with Capacity Constraints: An Experimental Investigation. Games 2018, 9, 15.

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