The effect of shill bidding upon prices: Experimental evidence
Dakshina G De Silva2007, International Journal of Industrial Organization
Sign up for access to the world's latest research
checkGet notified about relevant papers
checkSave papers to use in your research
checkJoin the discussion with peers
checkTrack your impact
Abstract
This paper explores, through a series of experiments, the effect of shill bidding upon revenues and prices in auctions. We study the practice of shill bidding in a common value framework. Our findings are consistent with the theoretical prediction that, if bidders are aware of the possibility of seller participation in an auction, shill bidding lowers profits on average. Shill bidding can alleviate the problem of the winner's curse by lowering the price and it can, thus, provide benefits to the bidders. Finally, even though there were too many bidders that submitted bids in these auctions, the number of entrants was not affected by the possibility of seller participation, which is also consistent with the theory. JEL Classification: C91, D44.
Related papers
Shill Bidding and Information in Sequential Auctions: A Laboratory Study
2018
Second-price auctions with public information, such as those on eBay, provide an opportunity for sellers to use the information from finished and ongoing auctions when acting strategically in future auctions. Sellers have frequently been observed to bidding on their own item with the intent to artificially increase its price. This is known as shill bidding. Using lab experiments with two sequential auctions, we study the effect of shill bidding when the seller can choose to shill bid in the second auction. We also study the impact of different information revelation policies regarding the provision of the first auction bidding history to the seller. The experimental data confirm that shill bidding in the second auction affects outcomes in both auctions. Our findings are consistent with the predictions that the threat of shill bidding in the second auction does increase the bidders' final bid in the first auction. However, providing the seller with the bidding history from the fi...
Auctions with shill bidding
Economic Theory, 2004
Shill bidding has increased substantially in recent years since the technology employed to conduct on-line auctions enables many sellers to disguise their identities and bid. Although their intent is to gain by misleading the bidders on the value of the object, we show that in a common value auction sellers are worse off shill bidding. In fact, any out-of-auction mechanism that makes it difficult for them to shill bid increases their revenues. In addition, shill bidding reduces the surplus of the bidders and the surplus from trade. It is only the auctioneer who could gain from this activity and in that sense he may not have an incentive from within the auction to discourage shill bidding.
Shill bidding in multi-round online auctions
Proceedings of the 35th Annual Hawaii International Conference on System Sciences
The online implementation of traditional business mechanisms raises many new issues not considered in classical economic models. This partially explains why online auctions have become the most successful but also the most controversial Internet businesses in the recent years. One emerging issue is that the lack of authentication over the Internet has encouraged shill bidding, the deliberate placing of bids on the seller's behalf to artificially drive up the price of the seller's auctioned item. Private-value English auctions with shill bidding can result in a higher expected seller profit than other auction formats [1], violating the classical revenue equivalence theory. This paper analyzes shill bidding in multi-round online English auctions and proves that there is no equilibrium without shill bidding. Taking into account the seller's shills and relistings, bidders with valuations even higher than the reserve will either wait for the next round or shield their bids in the current round. Hence, it is inevitable to redesign online auctions to deal with the "shiller's curse."
Fighting collusion in auctions: An experimental investigation
2011
The danger of collusion presents a serious challenge for auctioneers. In this paper, we compare the collusive properties of two standard auctions, the English auction and the …rst-price sealed-bid auction, and a lesser-known format, the Amsterdam (secondprice) auction. In the Amsterdam auction, the highest losing bidder earns a premium for stirring up the price. We study two settings: in one, all bidders can collude, and in another, only a subset is eligible. The experiments show that the Amsterdam auction triggers less collusion than the standard auctions. We compare experimental results to theoretical predictions, and provide an explanation where they di¤er.
Understanding the impact of shill bidding in online English auctions
Increasing popularity of online auctions and the associated frauds have drawn the attention of many researchers. It is found [hal most of the auction sites prefer English auction to other auction mechanisms. The ease of adopting multiple fake idenlities over the Internet nourishes shill bidding by fraudulent sellers in English auction. In this paper we derive an equilibrium bidding strategy (0 counteract shill bidding in online English auction. Due to mere fear of cheating, the buyers may deviate from their normal behavior. Thus, there is a chance that an honest auctioneer may suffer from the loss of revenue because of lack of bidders' faith on him. Sometimes an honest bidder has to pay more due to unfair bidding practices. It is imponant !O see which auction is most suitable from bidder's and ill.lclioneer's point of view in cheating environment We also make a comparison of honest bidder's expected gain and honest auctioneer's revenue loss for three importanllypes of auctions: English auction. first price sealed-bid auction, and second price scaled-bid auction. The analysis of the results reveal that English auction should be the mOSl preferred mechanism from both honest buyer's and honesl seller's point of view. This fact can be uscd to explain the popularily of English auction over the Internet.
Posted Prices and Bid Affiliation: Evidence from Experimental Auctions
American Journal of Agricultural Economics, 2006
In most experimental auctions, researchers ask participants to bid on the same item in multiple potentially binding rounds, posting the price submitted by the top bidder or bidders after each of those rounds. If bids submitted in later rounds are affiliated with posted prices from earlier rounds, this practice could result in biased value estimates. In this article, we discuss the results of an experiment designed explicitly to test whether posted prices affect bidding behavior. We find that for familiar items, high posted prices lead to increased bids in subsequent rounds. Our results have implications for researchers conducting experimental auctions.
How to Boost Revenues in First-Price Auctions? The Magic of Disclosing Only Winning Bids from Past Auctions
2015
A long-term auctioneer who repeatedly sells identical or similar items might disclose selective information about past bidding. We present an experimental design to evaluate the revenue implications of two common policies: disclosure of all past bids versus winning bids only. The analysis of our data points out that disclosing winning bids dominates in terms of revenue generation. We propose that when presented historical winning bids some of the bidders mistakenly best-respond to that distribution, failing to realize that winning bids are not representative of all bids. In the steady state, this selection bias results in higher auction revenues relative to when all bids are presented. On the theory side, the findings challenge the predictive power of Bayesian Nash Equilibrium based on rational bidders (that would yield revenue equivalence). On the market design side, they underline the role of historical market information as a key design choice. PRELIMINARY AND INCOMPLETE DRAFT. D...
The effect of corruption on bidding behavior in first-price auctions
European Economic Review, 2009
If the owner of an object sells it through an auction run by an agent of hers, there is scope for corruption. We analyze the effect of a particular form of corruption on bidding behavior in a single-object, private-value sealed-bid auction with risk-neutral bidders.
Revenue implication of auction value in k-price sealed-bid auctions: An experimental study
Marketing Letters, 2007
In this paper, we show that in a heterogeneous bidding community with predominantly risk-seeking bidders, third-price sealed-bid auctions yield higher revenue for the seller than first-price sealed-bid auctions when the auction value is low. Conversely, when the value of the auction is high, first-price sealed-bid auctions yield higher revenue for the seller than third-price sealed-bid auctions. Existing theoretical findings for a homogeneous group of risk-seeking individuals imply that third-price sealed-bid auctions should generate higher revenues for the seller than first-price sealed-bid auctions. Our results for low-value auctions agree but our results for high-value auctions do not agree with the existing findings. We discuss the implications of this discrepancy as a function of the shift in goal orientation from a win-focus to a value-focus as the value of the auction increases. Keywords Sealed-bid auction . Auction value . Experimental design Despite an extensive literature on auction theory, most of the work adopts an economic analysis of the topic and papers with a marketing focus are few and far between. This is particularly so before the advent of the Internet . Growing interest in auctions on the Internet in recent years as a result of popular auction sites such as eBay has given rise to an increasing number of research papers on auctions in the area of marketing.
Related topics
Cited by
Shilling, Squeezing, Sniping. A further explanation for late bidding in online second-price auctions
Journal of Behavioral and Experimental Finance
This is a PDF file of an article that has undergone enhancements after acceptance, such as the addition of a cover page and metadata, and formatting for readability, but it is not yet the definitive version of record. This version will undergo additional copyediting, typesetting and review before it is published in its final form, but we are providing this version to give early visibility of the article. Please note that, during the production process, errors may be discovered which could affect the content, and all legal disclaimers that apply to the journal pertain.
Related papers
Bidder collusion at first-price auctions
Review of Economic Design, 2011
We show that in simple environments, a bidding ring operating at a first-price sealed-bid auctions cannot achieve any gains relative to non-cooperative bidding if the ring is unable to control the bids that its members submit at the auction. This contrasts with results for the case in which the ring can control its members' bids or prevent all but one of the ring members from participating in the auction. Numerical results suggest that this result extends to some more complex environments. The analytic results use linear progreamming techniques that have potential applications to a number of other economic problems.
Understanding Overbidding in Second Price Auctions: An Experimental Study
The Economic Journal, 2008
This paper presents results from a series of second price private value auction (SPA) experiments in which bidders are either given for free, or are allowed to purchase, noisy signals about their opponents' value. Even though theoretically such information about oppoents' value has no strategetic use in the SPA, it provides us with a convenient instrument to change bidders' perception about the \strength" (i.e. the value) of their opponent. We argue that the empirical relationship between the incidence and magnitude of overbidding and bidders' perception of the strength of their opponent provides the key to understand whether overbidding in second price auctions are driven by \spite" motives or by the \joy of winning." The experimental data show that bidders are much more likely to overbid, though less likely to submit large overbid, when they perceive their rivals to have similar values as their own. We argue that this empirical relationship is more consistent with a modi ed \joy of winning" hypothesis than with the \spite" hypothesis. However, neither of the non-standard preference explanations are able to fully explain all aspects of the experimental data, and we argue for the important role of bounded rationality. We also nd that bidder heterogeneity plays an important role in explaining their bidding behavior.
A Laboratory Study of Demand Reduction and Collusion In Uniform and Discriminatory Price Auctions &
ciep.itam.mx
The Affiliation Effect in First-Price Auctions
Econometrica, 2005
We study the monotonicity of the equilibrium bid with respect to the number of bidders n in affiliated private-value models of first-price sealed-bid auctions and prove the existence of a large class of such models in which the equilibrium bid function is not increasing in n. We moreover decompose the effect of a change in n on the bid level into a competition effect and an affiliation effect. The latter suggests to the winner of the auction that competition is less intense than she had thought before the auction. Since the affiliation effect can occur in both private-and common-value models, a negative relationship between the bid level and n does not allow one to distinguish between the two models and is also not necessarily (only) due to bidders taking account of the winner's curse.
Chapter 23 Some Results on Anti-Competitive Behavior in Multi-Unit Ascending Price Auctions
Handbook of Experimental Economics Results, 2008
Harmful competition in all-pay auctions
Mathematical Social Sciences, 2009
Don’t Fear the Simplicity-An Experimental Analysis of Auctions
2017
5 I evaluate the performance of four static sealed-bid package auctions in an experimental 6 setting with complementarities. The valuation model comprises two items, and three bidders: 7 two ‘local’ bidders demand one item only, while the third (global) bidder only wants both. 8 The rules I compare include the Vickrey and first-price auctions, Vicrkey Nearest Rule 9 and the Reference Rule. Auction-level tests find the first-price auction revenue dominant 10 overall without losing efficiency, while the Vickrey auction performs worst; the other two 11 rules rank intermediate. Bidder-level tests of the experimental data reject the competitive 12 equilibrium bidding functions: overbidding is widespread in all four auctions, and bidders 13 are averse to submitting boundary bids. In core-selecting auctions bidders do not revert 14 to truth-telling rules of thumb. I also observe behavior consistent with collusive bidding 15 in the Vickrey auction. Contrary to theoretical predictions, the V...
Independent Private Value Auctions: Bidder Behaviour in First-, Second- and Third-Price Auctions with Varying Numbers of Bidders
The Economic Journal, 1993
FIRST-PRICE COMMON VALUE AUCTIONS: BIDDER BEHAVIOR AND THE “WINNER'S CURSE”
Economic Inquiry, 1989
winner's curse in early auction periods as high bidders consistently lose money, failing to account for the adverse selection problem inherent in winning the auction. With experience and bankruptcy on the part of the worst offenders, subjects earn positive average profits, but these are far below Nash equilibrium predictions as a sizable minority of bicis exceed the expected value of the item conditional on having the highest estimate of value. Individual bidding behavior is explored to identifr the mechanism whereby market outcomes no longer display the worst effects of the winner's curse.
On the impact of low-balling: Experimental results in asymmetric auctions
International Journal of Game Theory, 2002
The paper reports on a series of asymmetric auction experiments with private-independent values and two buyers. Maskin and Riley (2000) showed, under some conditions, that if one buyer has a greater probability than the other of not being able to bid, first-price auctions could yield lower revenues to the seller than second-price auctions. The data rejected this prediction because of an important overbidding when subjects received low values in firstprice auctions. In this asymmetric setting, the observed overbidding cannot be explained by the usual risk aversion hypothesis and the detection of a learning pattern indicates that subjects used more an adaptive behaviour than a static one. An ad hoc bidding strategy for the buyers who are the most likely to bid explains the observed low bids better than the risk neutral equilibrium strategy. Finally, as subjects appear to have bid in equilibrium as if there were two other competitors instead of only one, their bidding behaviour can be thought to have displayed an over anxiousness about winning.
Loading Preview
Sorry, preview is currently unavailable. You can download the paper by clicking the button above.