Bidder Participation Research Articles

An Empirical Investigation into the Structure of Bidding in Online Auctions

The study maps the bidding patterns of 1,051 completed English auctions from the eBay website to study their structural patterns. The overall pattern appears to be a cubic. People initially bid the price to 60–70% of the final value. The price levels off only to take off near the end of the auction, when it reaches its final price. The second part of the study measures the effects of information on bidding. The effect of secret reserve price information on auctions is compared for differences in bidder participation and resultant final values. The results indicate significant structural differences in bidding patterns and bidder behaviour for auctions with secret reserve price information. When compared to auctions without reserve price, completed auctions with reserve price attract more bidders, more competitive bidding, and consequently realize higher final values.

Equilibria in second price auctions with participation costs

We investigate equilibria of sealed-bid second price auctions with bidder participation costs in the independent private values environment. We focus on equilibria in cutoff strategies (participate and bid the valuation iff it is greater than the cutoff), since if a bidder finds it optimal to participate, she cannot do better than bidding her valuation. When bidders are symmetric, concavity (strict convexity) of the cumulative distribution function from which the valuations are drawn is a sufficient condition for uniqueness (multiplicity) within this class. We also study a special case with asymmetric bidders and show that concavity/convexity plays a similar role.

Bidder Participation and Information in Currency Auctions

This paper studies the participation and performance of sophisticated versus unsophisticated auction participants in an environment with numerous bidders, uncertainty, and asymmetric information. We examine multi-unit, pay-as-bid, currency auctions conducted by the Central Bank of Venezuela. We find that sophisticated bidders outperform their less sophisticated rivals during periods of high volatility, apparently as a result of their superior informationgathering ability. The result is consistent across both quantity (sophisticated bidders win more market share) and price (sophisticated bidders pay lower premiums). The result is consistent with the view that a pay-as-bid auction format may be detrimental to participation by less-informed bidders.

Bidder Participation and Information in Currency Auctions

This paper studies the participation and performance of sophisticated versus unsophisticated auction participants in an environment with numerous bidders, uncertainty, and asymmetric information. We examine multi-unit, pay-as-bid, currency auctions conducted by the Central Bank of Venezuela. We find that sophisticated bidders outperform their less sophisticated rivals during periods of high volatility, apparently as a result of their superior information-gathering ability. The result is consistent across both quantity (sophisticated bidders win more market share) and price (sophisticated bidders pay lower premiums). The result is consistent with the view that a pay-as-bid auction format may be detrimental to participation by less-informed bidders.

Equilibria in Second Price Auctions with Participation Costs

We investigate equilibria of sealed-bid second price auctions with bidder participation costs in the independent private values environment. We focus on equilibria in cutoff strategies (participate and bid the valuation iff it is greater than the cutoff), since if a bidder finds it optimal to participate, she cannot do better than bidding her valuation. When bidders are symmetric, concavity (strict convexity) of the cumulative distribution function from which the valuations are drawn is a sufficient condition for uniqueness (multiplicity) within this class. We also study a special case with asymmetric bidders and show that concavity/convexity plays a similar role.

Who Wins on eBay: An Analysis of Bidders and Their Bid Behaviours

Online auctioning is one of the more successful business innovations on the Web. The auction format at eBay, the leading online auctioneer, has some unique characteristics including a fixed closing time for the bids and the use of a proxy bidding system that that is capable of acting as a bidder's agent. These features, coupled with third party products such as sniping software, have introduced novel bidder behaviours that may not occur in more traditional auction formats. In an attempt to study these behaviours, we collected and analysed data from over 11,000 eBay auctions. This paper presents the results of the analyses including descriptive information about the auctions and the classification of bids and bidders based on bid timing, frequency and strategy employed. The different types of bidders and their success rates offer insights into the nature of bidder participation in eBay auctions. In addition, chi‐square analyses reveal significant differences among the bidding strategies with respect to auc...

Termination fees in mergers and acquisitions

The paper provides evidence on the effects of including a target termination fee in a merger contract. I test the implications of the hypothesis that termination fees are used by self-interested target managers to deter competing bids and protect “sweetheart” deals with white knight bidders, presumably resulting in lower premiums for target shareholders. An alternative hypothesis is that target managers use termination fees to encourage bidder participation by ensuring that the bidder is compensated for the revelation of valuable private information released during merger negotiations. My empirical evidence demonstrates that merger deals with target termination fees involve significantly higher premiums and success rates than deals without such clauses. Furthermore, only weak support is found for the contention that termination fees deter competing bids. Overall, the evidence suggests that termination fee use is at least not harmful, and is likely beneficial, to target shareholders.

A New Empirical Study of the Mexican Treasury Securities Primary Auctions: Is There More Underpricing?

Examination of new data of the Mexican government securities primary auctions shows, not only that there exists underpricing with respect to the secondary market in CETES, the zero coupon Treasury bonds, of 28, 91, 182, and 365 days maturity, but also that such underpricing tends to increase over time, especially during the period of 1996-2000. This study also finds that changes to the auction format employed by the Mexican Treasury do not fully account for this pattern because in spite that since 1995 the discriminatory format is in place, some modifications have been adopted with the purpose of improving sales conditions in the primary auctions, like setting common maximum bidding limits for all participants or reopening securities issues with high observed interest rates. Usual factors assumed to affect auction prices by existing models, like competition level, bidder participation and market uncertainty seem to play a role. However, evidence is also found that some factors related to secondary market features suggested by the finance microstructure literature, like liquidity, inventory and adverse selection costs may be playing an even more important role. Overall, these findings provide confirmation of the relevance of resale markets and suggests that: 1) it may be fruitful to add some of these latter features in future theoretical models about government securities markets and 2) to improve secondary market conditions may be important to enhance efficiency in the primary market.

Exclusive Dealing through Resellers in Auctions with Stochastic Bidder Participation

This paper demonstrates that a seller prefers to exclude final consumers from an auction and sell only to resellers when these resellers can gain access, at a cost, to a sufficiently bigger market than the seller himself. The intuition is that resellers recoup their expenses for marketing the item by reselling it to final consumers. If some consumers participate in the first auction and are outbid by the resellers, then their values for the item are relatively low. Outbidding part of their customer base is “bad news” for the resellers, and this depresses their bids when consumers compete with them. The socially optimal and revenue-maximizing choices of auction format may not coincide: Restricting participation of consumers may be socially optimal but privately suboptimal and vice-versa. The results suggest that (i) the exclusion of final consumers in some auctions may not be driven by transaction cost considerations, and (ii) sellers should not necessarily sell directly to consumers, even though new technologies allow them to do so at essentially zero cost, unless they can access a sufficiently large portion of the market.

Exclusive Dealing through Resellers in Auctions with Stochastic Bidder Participation

This paper demonstrates that a seller prefers to exclude final consumers from an auction and sell only to resellers when these resellers can gain access, at a cost, to a sufficiently bigger market than the seller himself. The intuition is that resellers recoup their expenses for marketing the item by reselling it to final consumers. If some consumers participate in the first auction and are outbid by the resellers, then their values for the item are relatively low. Outbidding part of their customer base is “bad news” for the resellers, and this depresses their bids when consumers compete with them. The socially optimal and revenue‐maximizing choices of auction format may not coincide: Restricting participation of consumers may be socially optimal but privately suboptimal and vice‐versa. The results suggest that (i) the exclusion of final consumers in some auctions may not be driven by transaction cost considerations, and (ii) sellers should not necessarily sell directly to consumers, even though new technologies allow them to do so at essentially zero cost, unless they can access a sufficiently large portion of the market.

Shadow pricing diversity in U. S. national forests

Tobit estimation of the market value of timber sales in national forests of North Carolina demonstrates the important effect of stand diversity on the formulation of bid prices for mixed-species timber tracts. The hedonic model generates a shadow price for diversity according to changes in bid prices, an effective shift in the demand curve for auctioned tracts due to stand diversity attributes. This approach contrasts with traditional shadow price analyses that focus on the supply effects of environmental constraints. Results are corrected for the effects of bidder participation, market conditions, production costs, and other stand attributes. Econometric results demonstrate that stand heterogeneity is a highly significant factor influencing the market value of timber sales from national forests of the Appalachian region. Greater heterogeneity results in lower bid prices for timber sales, indicating a positive shadow price for maintenance of stand diversity.

Auctions with endogenous entry

Predictions from auction models with endogenous bidder participation depend on whether entry takes place under asymmetric information or not. Auctions that are not revenue equivalent in the former set up may be so in the latter. Moreover, under asymmetric information the social planner does not discourage entry even when the bid preparation cost is large.

Optimal Exclusive Dealing Through a Distribution Channel in Auctions with Stochastic Bidder Participation

This paper endogenizes exclusive dealing through a distribution channel in auction markets. In particular, it is demonstrated that a seller prefers to exclude final consumers and sell only to re-sellers when these resellers can gain access, at a cost, to a sufficiently bigger market than the seller himself. The intuition behind this result is that the re-sellers can recoup their expenses for marketing the item by re-selling it to the final consumers. If some of the consumers participate in the first auction and are outbid by the resellers, this is an indication that their values for the item are relatively low. Outbidding part of their customer base is 'bad news' for the resellers, and this depresses their bids when final consumers compete with them. The socially optimal and revenue maximizing choices of auction format may not coincide. It is possible that restricting participation of consumers is socially optimal but privately sub-optimal and vice-versa. The results of this paper suggest that (i) the exclusion of final consumers in some auctions may not be driven by transaction costs considerations, and (ii) sellers should not necessarily sell directly to consumers even though new technologies, such as electronic/ Internet trading, allow them to do so at essentially zero cost.

Corporate Reorganizations and Non‐Cash Auctions

This paper extends the theory of non‐cash auctions by considering the revenue and efficiency of using different securities. Research on bankruptcy and privatization suggests using non‐cash auctions to increase cash‐constrained bidder participation. We examine this proposal and demonstrate that securities may lead to higher revenue. However, bidders pool unless bids include debt, which results in possible repossession by the seller. This suggests all‐equity outcomes are unlikely and explains the high debt of reorganized firms. Securities also inefficiently determine bidders' incentive contracts and the firm's capital structure. Therefore, we recommend a new cash auction for an incentive contract.

A dynamic model of Bertrand competition with entry

This paper analyzes a simple, repeated game of simultaneous entry and pricing. We report a surprising property of the symmetric equilibrium solution: If the number of potential competitors is increased above two, the market breaks down with higher probability, and the competitive outcome becomes less likely. More potential competition lowers welfare – another Bertrand paradox. The model can also be applied to auctions to explore whether a revenue maximizing auctioneer should restrict the number of bidders if bidder participation is costly.

Assessing the Resolution of Insolvent Thrift Institutions post FIRREA: The Impact of Resolution Delays

The Resolution Trust Corporation (RTC) was created by FIRREA in 1989 to manage and dispose of troubled thrifts in a manner that would minimize resolution costs. In this study, we focus on the transition of troubled thrifts from conservatorship into resolution via sales in RTC auctions. We examine the determinants of bidder participation, observed premiums, and RTC estimates of resolution costs, including the impact of resolution delays in RTC-insured-deposit-transfer and purchase-and-assumption auctions from August 1989 to November 1991. Our analysis indicates that resolution delays were associated with lower premiums and higher resolution costs. These associations are found to be economically and statistically significant and result from both the deterioration in franchise value and the deterioration in asset value while being held in conservatorship.

A Dynamic Model of Bertrand Competition with Entry

This paper analyzes a simple, repeated game of simultaneous entry and pricing. We report a surprising property of the symmetric equilibrium solution: If the number of potential competitors is increased above two, the market breaks down with higher probability, and the competitive outcome becomes less likely. More potential competition lowers welfare--another Bertrand paradox. The model can also be applied to auctions to explore whether a revenue maximizing auctioneer should restrict the number of bidders if bidder participation is costly.

Deficit Reduction Through Diversity: How Affirmative Action at the FCC Increased Auction Competition

INTRODUCTION 2 I. THEORY 4 A. Set-Asides Can Enhance Intragroup Competition Among Strong Bidders 6 B. Bidding Credits Can Create Effective Set-Asides 7 C. Bidding Credits Can Create Intergroup Competition 7 D. Affirmative Action Can Increase Expected Revenue When the Government Is Imperfectly Informed About Bidder Valuations 7 E. Affirmative Action Can Destabilize Tacit Collusion 9 II. EMPIRICISM 9 A. Describing the Licenses and the Auction Rules 10 B. The Impact of Affirmative Action 14 1. Comparing the nationwide and regional results 14 2. The impact of designated crossover bidding 17 3. The impact of the set-aside licenses. 22 C. Alternative Hypotheses 23 1. Hiding in the grass 24 2. The designated bidders would have bid anyway 25 3. Affirmative action might have chilled non-designated bidder participation 26 D. Strategic Perversities: Bidding Above Atomistic Reservation Prices 26 1. Risk of partial aggregation. 26 2. Raising rivals’ costs and predatory strategies. 27 3. Reduced retail competition. 28 III. APPLICATIONS TO GOVERNMENT PROCUREMENT AND PRIVATE EMPLOYMENT 29 A. Government Procurement 29 B. Private Employment 31 IV. LEGAL IMPLICATIONS 32 A. Public Affirmative Action 32 1. Revenue enhancement is constitutionally insufficient. 32 2. Did the FCC’s rules enhance minority or female control of the airwaves ? 33 3. Affirmative action costs the government less than is commonly assumed. 34 B. Private Affirmative Action May Deserve Higher Scrutiny 35 CONCLUSION 36 APPENDIX 37

Real estate auctions: A survey of theory and practice

Recent downturns in real estate markets combined with a general acceptance of auctions have resulted in an unprecedented number of auction sales. A need therefore exists for the further development of real estate auction models that can provide insights into this emerging market institution. To facilitate this task a survey of auction theory as pertaining to its application in real estate markets is provided in this paper. Topics addressed includes bidding equilibria, the role of reserve prices, information disclosure, the decision to use auctions, bidder participation, and multiple-object sales. An overview of empirical studies in this area is also provided.

First price auctions with entry: An experimental investigation

For an auction market that is costly to participate in, the equilibrium, market size is endogenously determined by the auction's expected profitability. A few recent papers have addressed bidder endogeneity and note important result differences this recognition can cause. The purpose of this paper is to present an initial empirical investigation of a first-price private-values auction in which bidder participation requires payment of an entry fee. The results indicate that market site is inversely related to the size of the entry fee and agents enter the auction until the average profitability equals or is less than the entry fee.