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Auction Behavior: Essays on Externalities and Estimating Value Distributions from EBay

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2009, Doctor of Philosophy, Ohio State University, Economics.
Standard literature on auctions considers isolated markets with bidders that are ex ante identical and independent. My dissertation research considers the behavior of bidders and sellers when they take into account other auctions and bidders' relative roles outside of a given auction. I further extend this investigation through classroom experiments. In the first chapter, I study bidders' optimal strategies under negative externalities (i.e., the auction may incur losses (instead of zero payoffs) to the losing bidders). I construct a model of auction with three bidders. One bidder is special in the sense that if he wins, both of the other bidders will incur a loss; the other two bidders are regular in the sense that as in a traditional auction, if one of them wins, the losing bidders will receive zero payoffs. Intuitively one expects regular bidders to bid more aggressively than normal to avoid the loss. However, I find that in an ascending clock auction, in equilibrium regular bidders bid less aggressively and quit before reaching their private values. This occurs because a regular bidder may have to bid above his value in order to win against the special bidder and thus risks negative profit by bidding aggressively. Since both regular bidders avoid the externality if either wins, there is a free riding incentive. Despite free riding, in most cases the clock auction is ex post efficient However, in first-price sealed bid auctions free riding and aggressive bidding incentives are simultaneous, so ex post efficiency is less frequent. I also conducted classroom experiments which suggest that bidders more often exhibit aggressive bidding rather than free riding in an ascending clock auction; furthermore, I show that in first-price sealed bid auctions, regular bidders bid more aggressively than the special bidder, indicating aggressive bidding incentives dominate free riding incentives. In the second chapter, I construct an auction model in which both number of bidders and sellers' reserve prices are endogenously determined, and estimate the value distribution among eBay bidders. I assume each bidder has a choice of auctions with different reserve prices and other auction specific factors (seller's reputation, shipping cost, auction duration, etc.). I show that in equilibrium, 1) each bidder must be indifferent to entry in any auction, and 2) each seller's reserve price must maximize expected revenue given auction structure and bidder entry behavior, which jointly determines the equilibrium number of bidders in each auction. Few theoretical works have been done to find the positive optimal reserve price when the number of bidder is endogenous. And previous empirical work usually uses observed bids to estimate bidders' value distribution and take sellers' choice (e.g., reserve prices) as exogenous. Based on the equilibrium relationship described above, my model allows estimation of bidders' value distribution not only from observed bids, but also from the number of bidders and reserve prices. To apply this structural estimation method, I use eBay digital camera auction data to estimate bidders' value distribution from bid observations and reserve prices.
Lung-Fei Lee, PhD (Committee Chair)
Lixin Ye, PhD (Advisor)
John Kagel, PhD (Committee Member)
119 p.

Recommended Citations

Citations

  • Hu, Y. (2009). Auction Behavior: Essays on Externalities and Estimating Value Distributions from EBay [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1250677684

    APA Style (7th edition)

  • Hu, Youxin. Auction Behavior: Essays on Externalities and Estimating Value Distributions from EBay. 2009. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1250677684.

    MLA Style (8th edition)

  • Hu, Youxin. "Auction Behavior: Essays on Externalities and Estimating Value Distributions from EBay." Doctoral dissertation, Ohio State University, 2009. http://rave.ohiolink.edu/etdc/view?acc_num=osu1250677684

    Chicago Manual of Style (17th edition)