Penny auctions

Hinnosaar, Toomas

Abstract

This paper studies penny auctions, a novel auction format in which every bid increases the price by a small amount, but placing a bid is costly. Outcomes of real-life penny auctions are often surprising. Even when selling cash, the seller may obtain revenue that is much higher or lower than its nominal value, and losers in an auction sometimes pay much more than the winner. This paper characterizes all symmetric Markov-perfect equilibria of penny auctions and studies penny auctions’ properties. The results show that a high variance of outcomes is a natural property of the penny auction format and high revenues are inconsistent with rational risk-neutral participants.

Citation

Hinnosaar, T. (2016). Penny auctions. International Journal of Industrial Organization, 48, 59-87. https://doi.org/10.1016/j.ijindorg.2016.06.005

• Journal Article Type: Article
• Acceptance Date: Jun 3, 2016
• Online Publication Date: Jun 16, 2016
• Publication Date: 2016-09
• Deposit Date: Jun 22, 2020
• Publicly Available Date: Jun 22, 2020
• Journal: International Journal of Industrial Organization
• Print ISSN: 0167-7187
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 48
• Pages: 59-87
• DOI: https://doi.org/10.1016/j.ijindorg.2016.06.005
• Public URL: https://nottingham-repository.worktribe.com/output/4700516
• Publisher URL: https://www.sciencedirect.com/science/article/abs/pii/S0167718716300960
• Additional Information: This article is maintained by: Elsevier; Article Title: Penny auctions; Journal Title: International Journal of Industrial Organization; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.ijindorg.2016.06.005; Content Type: article; Copyright: © 2016 Elsevier B.V. All rights reserved.