Abstract

Auction theory has recently investigated the demand-reduction incentives and potential inefficient allocations of multi-unit uniform-price auctions, such as those used by the U.S. Treasury for debt sales. Recent experimental results show that bidders do indeed strategically reduce their bids in uniform-price auctions. The present paper extends this area of research, both theoretically and experimentally, to consider the effects of varying the number of bidders. We derive several theoretical predictions, including: i) demand reduction should decrease with an increase in the number of bidders and ii) considerable demand reduction remains even in the asymptotic limit, although truthful bidding yields profits very close to those of equilibrium play. We empirically test our theory by examining bidding behavior of subjects in an actual marketplace, where we auction dozens of sportscards using both uniform-price and Vickrey auction formats. The field data are broadly consistent with the theoretical predictions of our model: most notably, demand reduction becomes much smaller and harder to detect as the number of bidders increases. JEL Classification: D44 (auctions), C93 (Field Experiments)

Citations