We analyze bidding behavior in large discriminatory-price auctions in a common value setting where the number of objects is a non-trivial proportion of the number of bidders. We show that the average price paid in the auction is biased downward from the expected value of the objects, even in the competitive limit. We show that conditional on a signal that falls below a threshold, a bidder bids no more than the expected value of an object conditional on the signal and winning; while conditional on any signal that lies above the threshold the bid is strictly lower than the expected value conditional on the signal and winning.
Bibliographical noteFunding Information:
We are grateful for financial support from the National Science Foundation under Grant SES-9986190 and SES-0316493. We thank an associate editor and referee for helpful suggestions, and Phil Reny for pointing out a significant error in an earlier version.
- Asymptotic efficiency
- Discriminatory auction
- Efficient market hypothesis
- Efficient markets