Bidders' choice auctions: Raising revenues through the right to choose

Creators: Goeree, Jacob K.; Plott, Charles R.; Wooders, John

Abstract

Keywords: Sales of multiple real-estate properties are often conducted via a sequence of ascending auctions, giving the winner at each stage the right to choose one of the available lots. We show that when bidders are risk averse, such "bidders' choice" auctions raise more revenues than standard simultaneous or sequential ascending auctions. We also report the results of laboratory experiments to investigate the effectiveness of bidders' choice auctions vis-à-vis the simultaneous ascending auction. The revenue-superiority of the bidders' choice auction is corroborated by the experimental data. Finally, we compare observed bidding behavior in the experiments with theoretically predicted bids to estimate a common risk aversion parameter from the data.

Additional Information

We are grateful to Roberto Burguet for very helpful suggestions, and to Larry Ausubel, Tim Cason, and participants at the European Economic Association Meetings in Stockholm (August, 2003) for comments. We acknowledge financial support from the Alfred P. Sloan Foundation, the National Science Foundation, and the Caltech Laboratory for Experimental Economics and Political Science. Published as Goeree, Jacob K. and Plott, Charles R. and Wooders, John (2004) Bidders' Choice Auctions: Raising Revenues Through the Right to Choose. Journal of the European Economic Association, 2 (2-3). pp. 504-515.

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