Comparing open and sealed bid auctions: theory and evidence from timber auctions. Working paper

We study entry and bidding patterns in sealed bid and open auctions with heterogeneous bidders. Using data from U.S. Forest Service timber auctions, we document a set of systematic e¤ects of auction format: sealed bid auctions attract more small bidders, shift the allocation towards these bidders, and can also generate higher revenue. We propose a model, which extends the theory of private value auctions with heterogeneous bidders to capture participation decisions, that can account for these qualititive e¤ects of auction format. We then calibrate the model using parameters estimated from the data and show that the model can explain the quantitative e¤ects as well. Finally, we use the model to provide an assessment of bidder competitiveness, which has important consequences for auction choice. We thank Phil Haile, Guido Imbens, Richard Levin, Paul Milgrom, and Ilya Segal for helpful suggestions, and Jerry Hausman for advice at the early stages of this project. We are especially grateful to Rob Porter for providing detailed and insightful comments on an earlier draft of th