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Unique bid auctions: Equilibrium solutions and experimental evidence

Rapoport, Amnon and Otsubo, Hironori and Kim, Bora and Stein, William E. (2007): Unique bid auctions: Equilibrium solutions and experimental evidence.

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Abstract

Two types of auction were introduced on the Internet a few years ago and have rapidly been gaining widespread popularity. In both auctions, players compete for an exogenously determined prize by independently choosing an integer in some finite and common strategy space specified by the auctioneer. In the unique lowest (highest) bid auction, the winner of the prize is the player who submits the lowest (highest) bid, provided that it is unique. We construct the symmetric mixed-strategy equilibrium solutions to the two auctions, and then test them in a sequence of experiments that vary the number of bidders and size of the strategy space. Our results show that the aggregate bids, but only a minority of the individual bidders, are accounted for quite accurately by the equilibrium solutions.

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