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Does the absence of human sellers bias bidding behavior in auction experiments?

Published online by Cambridge University Press:  01 January 2025

Björn Bartling ,
Tobias Gesche  and
Nick Netzer
Björn Bartling*
Affiliation:
Department of Economics, University of Zurich, Blümlisalpstrasse 10, 8006 Zurich, Switzerland
Tobias Gesche
Affiliation:
Department of Economics, University College London, Gower St, Kings Cross, London WC1E 6BT, UK
Nick Netzer
Affiliation:
Department of Economics, University of Zurich, Blümlisalpstrasse 10, 8006 Zurich, Switzerland
*
e-mail: bjoern.bartling@econ.uzh.ch
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Abstract

This paper studies the impact of human subjects in the role of a seller on bidding in experimental second-price auctions. Overbidding is a robust finding in second-price auctions, and spite among bidders has been advanced as an explanation. If spite extends to the seller, then the absence of human sellers who receive the auction revenue may bias upwards the bidding behavior in existing experimental auctions. We derive the equilibrium bidding function in a model where bidders have preferences regarding both the payoffs of other bidders and the seller’s revenue. Overbidding is optimal when buyers are spiteful only towards other buyers. However, optimal bids are lower and potentially even truthful when spite extends to the seller. We experimentally test the model predictions by exogenously varying the presence of human subjects in the roles of the seller and competing bidders. We do not detect a systematic effect of the presence of a human seller on overbidding. We conclude that overbidding is not an artefact of the standard experimental implementation of second-price auctions in which human sellers are absent.

Keywords

Second-price auctionSpiteOverbiddingLab experimentsExternal validity

JEL classification

D44: Auctions C91: Laboratory, Individual Behavior D82: Asymmetric and Private Information • Mechanism Design
Type
Original Paper
Information
Journal of the Economic Science Association , Volume 3 , Issue 1 , July 2017 , pp. 44 - 61
Copyright
Copyright © Economic Science Association 2017

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Footnotes

Electronic supplementary material The online version of this article (doi:10.1007/s40881-017-0037-y) contains supplementary material, which is available to authorized users.

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