z-logo
open-access-imgOpen Access
Bounds in auctions with unobserved heterogeneity
Author(s) -
Armstrong Timothy B.
Publication year - 2013
Publication title -
quantitative economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.062
H-Index - 27
eISSN - 1759-7331
pISSN - 1759-7323
DOI - 10.3982/qe167
Subject(s) - common value auction , econometrics , economics , estimation , order (exchange) , set (abstract data type) , statistic , convergence (economics) , microeconomics , mathematics , computer science , statistics , management , finance , programming language , economic growth
Many empirical studies of auctions rely on the assumption that the researcher observes all variables that make auctions differ ex ante. When there is unobserved heterogeneity, the direction of the bias this causes is known only in a few restrictive examples. In this paper, I show that ignoring unobserved heterogeneity in a first price sealed bid auction with symmetric independent private values gives bounds on several quantities of economic interest under surprisingly general conditions. The results apply to certain quantities related to expectations of valuations, including bidder profits (which can be used to recover bid preparation costs in entry models) and the efficiency loss of assigning the object randomly. I then turn to estimation of these bounds, and show that, when only the winning bid is available, the rate of convergence can be slower than the square root of the number of auctions observed and depends on the number of bidders. These results apply more generally to estimation of functionals of a distribution from repeated observations of an order statistic and may be of independent interest. I apply these methods to bound the efficiency loss from replacing a set of procurement auctions for highway construction in Michigan with random assignment.

The content you want is available to Zendy users.

Already have an account? Click here to sign in.
Having issues? You can contact us here