Abstract

AbstractWe test the ability of three previously advanced mechanisms to generate the declining price anomaly frequently observed in sequential auctions by employing a Bayesian hierarchical model framework to simulate heterogeneous bidders in sequential cattle auctions. One hypothesis is that declining prices are due to convergence in the buyers' bidding functions as bidders learn from each other. The second posits that as bidders fulfill their demand by winning earlier lots, the decrease in aggregate demand causes prices to fall. The third is the auction designer's strategic arrangement of lots. Results show the most plausible mechanism to be a strategic ordering of the lots.

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