Gambling by auctions.(Report) Raviv, Yaron; Virag, Gabor

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Raviv, Yaron ; Virag, Gabor
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International Journal of Industrial Organization
Auctions -- Analysis; Business, international; Analysis
To link to full-text access for this article, visit this link: Byline: Yaron Raviv (a), Gabor Virag (b) Keywords: Unique bid auctions; Multinomial distribution; Lotteries Abstract: We provide theoretical and empirical analysis of a selling mechanism used by an Internet web-site that combines important features of auctions and gambling. This is the first analysis of such a selling mechanism, which provides insights into how the two kinds of behavior might be related in real life. The winner of the object is the bidder with the highest bid not submitted by any other bidder. In the equilibrium of our game theoretical model, each bid made with positive probability yields the same probability of winning. Bidders are more likely to submit higher bids, and the bid distribution does not depend on the value of the object or the highest bid allowed if one controls for the number of bidders. Most of these key theoretical predictions are confirmed by the data. Author Affiliation: (a) Department of Economics, Claremont McKenna College, 308 Bauer Center, Claremont CA 91711, United States (b) Department of Economics, University of Rochester, 228 Harkness Hall, Rochester NY 14627, United States Article History: Received 28 April 2008; Revised 17 October 2008; Accepted 21 October 2008
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