Auction Strategies For Real World Markets

The theoretical and empirical study of auctions is of importance to economists as it provides unique insights into the behaviors and decision-making processes involved in the setting of prices that are otherwise unobserved in traditional fixed price sales. The papers in this dissertation look at observed outcomes from real world auctions and draw inferences as to the underlying economic behavior. The first paper examines the practice of auctioneers "fishing" for an opening bid by calling out lower and lower amounts until an opening bid is eventually proffered. I incorporate such a tactic into an auctioneer's strategy set within a game-theoretic model in which an indivisible good is sold via English ascending-price auction by a seller or auctioneer that cannot commit to a predetermined sequence of starting prices in advance. The analysis departs from previous literature by showing that the English auction is not strategically equivalent to the second-price auction within the dynamic setting. This difference has implications for the optimal starting price path, giving rise to an initial starting price consistent with the Coase conjecture. Additional price dynamics resembling "auction fever" are rationalized within this rational framework. In the second paper, I, along with a co-author, investigate theories of non-standard preferences and irrational bidding that have been used to explain the behavior of bidders in auctions online. We test these theories using data from a field experiment that we ran on eBay and supplemented with an observational dataset we collected from eBay. We find little evidence that several of these behavioral mechanisms are important in the field, and instead find behavior consistent with a standard rational model. The third paper examines the practice of shill bidding, whereby a seller in an online auction bids on his own item. To incorporate shill bidding into a seller's strategy set, I model the sale of a common value item via auction where some proportion of potential buyers have superior information and some proportion of potential sellers participate in the market only for the purpose of fraudulent selling. The model establishes the conditions under which shill bidding is supported in equilibrium