Sequential Auctions with Capacity Constraints: An Experimental Investigation

33 Pages Posted: 23 Jan 2015

See all articles by Isabelle Brocas

Isabelle Brocas

University of Southern California - Department of Economics

Juan D. Carrillo

University of Southern California - Department of Economics; Centre for Economic Policy Research (CEPR)

F. Javier Otamendi

Universidad Rey Juan Carlos

Date Written: January 2015

Abstract

We conduct a laboratory experiment where groups of 4 subjects constrained to obtain at most one good each, sequentially bid for 3 goods in first and second price auctions. Subjects learn at the beginning of each auction their valuation for the good and exit the auction once they have obtained one good. We show that, contrary to equilibrium predictions, subjects' bidding behavior is excessively similar across units and across mechanisms at the aggregate level. We provide two (complementary) explanations for these departures. One is bounded rationality. Subjects do not fully comprehend subtle differences between mechanisms. The other is self-selection. Subjects are very heterogeneous and some of them deviate more from equilibrium than others. Since deviations take mostly the form of overbidding, these subjects win the first or second good and exit the auction, leaving those who play closer to theoretical predictions to bid for the third good. Support for this hypothesis comes from the documented higher bidding, lower efficiency and lower profits associated with the first and second unit compared to the third one.

Keywords: auctions, laboratory experiment

JEL Classification: C92, D44, D82

Suggested Citation

Brocas, Isabelle and Carrillo, Juan D. and Otamendi, F. Javier, Sequential Auctions with Capacity Constraints: An Experimental Investigation (January 2015). CEPR Discussion Paper No. DP10340, Available at SSRN: https://ssrn.com/abstract=2554414

Isabelle Brocas (Contact Author)

University of Southern California - Department of Economics ( email )

3022 S. Vermont Ave
Los Angeles, CA 90089
United States
213-740-8842 (Phone)
213-740-8543 (Fax)

HOME PAGE: http://www-rcf.usc.edu/~brocas/

Juan D. Carrillo

University of Southern California - Department of Economics ( email )

3022 S. Vermont Ave.
Los Angeles, CA 90089
United States
213-740-3526 (Phone)
213-740-8543 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

F. Javier Otamendi

Universidad Rey Juan Carlos ( email )

Calle Tulipán, s/n
Madrid, Móstoles 28230
Spain

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