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The B.E. Journal of Theoretical Economics

Editor-in-Chief: Schipper, Burkhard

Ed. by Fong, Yuk-fai / Peeters, Ronald / Puzzello , Daniela / Rivas, Javier / Wenzelburger, Jan

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An Experimental Comparison of Sequential First- and Second-Price Auctions with Synergies

Kasper Leufkens
  • 1Department of Economics, Maastricht University, Maastricht, The Netherlands,
/ Ronald Peeters
  • 2Department of Economics, Maastricht University, Maastricht, The Netherlands,
/ Marc Vorsatz
  • 3Departamento de Análisis Ecónomico II, Universidad Nacional de Educación a Distancia, Madrid, Spain,
Published Online: 2012-01-04 | DOI: https://doi.org/10.2202/1935-1704.1608

Using laboratory experiments, we compare the performance of first-price and second-price auctions when two stochastically equivalent objects are auctioned sequentially and the winner of the first auction receives a positive synergy in the second auction. According to the risk-neutral subgame perfect Nash equilibrium, the second-price auction provides more efficiency and a higher revenue to the seller, but a lower ex ante expected payoff to the bidders. Our experimental data indicate precisely the opposite results for format comparisons: the first-price auction gives rise to larger levels of efficiency and revenue, but lower payoffs to the bidders. Despite the lower payoff, the likelihood of an ex post loss is also smaller under the first-price auction. Our results therefore support the common use of the first-price auction in governmental and business-to-business procurements.

Keywords: sequential auction; synergies; option value; exposure problem; experiment

About the article

Published Online: 2012-01-04

Citation Information: The B.E. Journal of Theoretical Economics, ISSN (Online) 1935-1704, DOI: https://doi.org/10.2202/1935-1704.1608. Export Citation

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