How to Boost Revenues in First-Pric e Auctions? The Magic of Disclosing Only Winning Bids from Past Auctions (with P. Jehiel and P. Katuscak)
Abstract:
We present an experiment to evaluate revenue implications o
f two disclosure policies available to a long-run auctioneer: disclosure of
all bids from past auctions and disclosure of winning bids only. Using a f
irst-price auction with two bidders, we find that disclosing the winning bi
ds leads to higher bids and revenues in the long run. We propose to explain
this finding by allowing a share of bidders to be naive in that, when pres
ented with historical winning bids, they mistakenly best-respond to that di
stribution, failing to realize that winning bids are not representative of
all bids. We also develop a method to estimate the fraction of naive bidder
s in a between-subject design and to relate it to the degree of bidders’ ri
sk aversion. Our findings challenge the predictive power of the Bayesian Na
sh equilibrium based on full bidder rationality, and they underline the sel
ection of historical price information as a key market design choice.