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Auctions and Leaks: A Theoretical and Experimental Investigation

Fischer, Sven and Guth, Werner and Kaplan, Todd and Zultan, Roi (2014): Auctions and Leaks: A Theoretical and Experimental Investigation.

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Abstract

We study first- and second-price private value auctions with sequential bidding where second movers may discover the first movers bids. There is a unique equilibrium in the first-price auction and multiple equilibria in the second-price auction. Consequently, comparative statics across price rules are equivocal. We experimentally find that in the first-price auction, leaks benefit second movers but harm first movers and sellers. Low to medium probabilities of leak eliminate the usual revenue dominance of first-price over second-price auctions. With a high probability of a leak, second-price auctions generate higher revenue.

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