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Published August 1, 2017 | Submitted
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Endogenous Entry and Self-selection in Private Value Auctions: An Experimental Study


This paper presents the results of an experimental study of endogenous entry and bidding behavior in first-price independent private value auctions. In the first stage N potential bidders simultaneously decide whether to participate in an auction or to claim a fixed outside option. At this stage all potential bidders know N, the distribution of possible values, and the value of the outside option. In the second stage, each entering bidder submits a bid after learning their own private value for the object and the number of entering bidders. We find evidence of self-selection effect, as predicted by an equilibrium model of heterogeneous risk averse bidders. The theoretical model predicts that bidding in the auction will be lower with endogenous entry because only the less risk averse bidders will choose to enter. We also find that entry decreases with the value of the outside option, as predicted. One surprising finding is that we observe over-entry relative to the theoretical predictions.

Additional Information

Revised version. Original dated to February 2003. We would like to thank Richard Day, W. Bentley MacLeod, John Morgan, Eric Talley, Quang Vuong, and seminar participants at Caltech, Ohio State University, Texas A & M University, University of Southern California, and the 2000 meeting of the Economic Science Association for many helpful comments. Financial support was provided by the Hacker Social Science Experimental Laboratory and the National Science Foundation (SES-9631627 and SES-0079301). We thank James Walker for sharing data. Published as Palfrey, T.R., & Pevnitskaya, S. (2008). Endogenous entry and self-selection in private value auctions: An experimental study. Journal of Economic Behavior & Organization, 66(3), 731-747.

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