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The Loser’s Bliss in Auctions with Price Externality

Jindal School of Management, The University of Texas at Dallas, SM 32, 800 West Campbell Road, Richardson, TX 75080, USA
School of Business, University of Alberta, Edmonton, AB T6G-2R6, Canada
Author to whom correspondence should be addressed.
Academic Editor: Ananish Chaudhuri
Games 2015, 6(3), 191-213;
Received: 21 April 2015 / Revised: 24 June 2015 / Accepted: 24 June 2015 / Published: 3 July 2015
(This article belongs to the Special Issue Experimental Studies of Social Dilemma Games)
We consider auctions with price externality where all bidders derive utility from the winning price, such as charity auctions. In addition to the benefit to the winning bidder, all bidders obtain a benefit that is increasing in the winning price. Theory makes two predictions in such settings: First, individual bids will be increasing in the multiplier on the winning price. Second, individual bids will not depend on the number of other bidders. Empirically, we find no evidence that increasing the multiplier increases individual bids in a systematic way, but we find that increasing the number of bidders does. An analysis of individual bidding functions reveals that bidders underweight the incentives to win and overweight the incentives to lose. View Full-Text
Keywords: auctions with price externality; bidder aggression; underbidding; experiments auctions with price externality; bidder aggression; underbidding; experiments
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Haruvy, E.; Popkowski Leszczyc, P.T.L. The Loser’s Bliss in Auctions with Price Externality. Games 2015, 6, 191-213.

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