Paola Valbonesi: Article from Games and Economic Behavior

"An experimental study on sequential auctions with privately known capacities". Published on Games and Economic Behavior.

In this paper, Paola Valbonesi (dSEA Unipd), Luca Corazzini (CERME Ca’ Foscari), Stefano Galavotti (University of Bari), have studied sequential procurement auctions where bidders' capacity constraints are private information. Their experiment involves two first-price auctions with a belief elicitation stage at the end of the first. Their results show that observed behavior in the second auction is overall consistent with sequential rationality; first auction bids are decreasing in the capacity of the bidder, but stated beliefs are inconsistent with the actual play.

Hence, subjects seem to be aware of the opportunity cost of early bids (which leads capacity constrained bidders to bid more cautiously than unconstrained ones); on the other hand, since they do not recognize the informative content of bids, the potential signaling cost associated with early bids does not come into play. 

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