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Endogenous Entry and Exit in Common Value Auctions

Published online by Cambridge University Press:  14 March 2025

James C. Cox ,
Sam Dinkin  and
James T. Swarthout
James C. Cox*
Affiliation:
Department of Economics, University of Arizona, Tucson, AZ 85721-0108
Sam Dinkin*
Affiliation:
Alkera, Inc. and First Intellectual, Inc., 2417 Tr. Madrones, Austin, TX 78746
James T. Swarthout*
Affiliation:
Department of Economics, University of Arizona, Tucson, AZ 85721-0108
*
email: jcox@bpa.arizona.edu
email: sam@dinkin.com
email: swarthout@econlab.arizona.edu
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Abstract

We develop and experimentally test a model of endogenous entry, exit, and bidding in common value auctions. The model and experimental design include an alternative profitable activity (a “safe haven”) that provides agent-specific opportunity costs of bidding in the auction. Each agent chooses whether to accept the safe haven income or forgo it in order to bid in the auction. Agents that enter the auction receive independently-drawn private signals that provide unbiased estimates of the common value. The auctioned item is allocated to the high bidder at a price that is equal to the high bid. Thus the market is a first-price sealed-bid common value auction with endogenous determination of market size.

Keywords

auctionsbidding theorymarket equilibriumexperimental economics

JEL classification

D44: Auctions C92: Laboratory, Group Behavior C72: Noncooperative Games D82: Asymmetric and Private Information • Mechanism Design

Information

Type
Research Article
Information
Experimental Economics , Volume 4 , Issue 2 , October 2001 , pp. 163 - 181
Copyright
Copyright © 2001 Economic Science Association

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