Dutch versus First-Price Auction with Dynamic Reference-Dependent Preferences

Abstract

We compare equilibrium bidding behavior in a Dutch auction and a first-price auction with independent private values when bidders have dynamic expectation-based reference-dependent preferences and are loss averse. If bidders perceive gain-loss utility due to the dynamic arrival of information, information revelation in the Dutch auction affects bidders' reference point and hence their equilibrium bidding behavior. Consequently the well-known strategic equivalence between Dutch auctions and first-price auctions breaks down. We show that the Dutch auction yields strictly higher expected revenue than the first-price auction. Hence, complementing existing studies, we obtain a full ranking of the four major auction formats (English, Dutch, first-price and second-price).

About the presenter's visit

Dr Benjamin Balzer will be visiting the School of Economics on Tuesday 22^nd  October 2019.  While here he will be using room 520A Colin Clark Building.  If you would like to meet with him or have lunch or dinner with him please contact Dr Metin Uyanik who will be his host while at The University of Queensland.  Dr Uyanik can be contacted on m.uyanik@uq.edu.au.