Non-aggressive bidding behavior and the "winner's curse"
Previous authors have noted a curious result that arises in the context of sealed-bid auctions: in certain situations it is in the bidder's interest to respond non-aggressively to increased competition. We consider a decision-theoretic formulation of the bidder's problem, and deriv...
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| Format: | Working Paper |
| Language: | en_US |
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MIT Energy Laboratory
2006
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| Online Access: | http://hdl.handle.net/1721.1/32990 |
| Summary: | Previous authors have noted a curious result that arises in the
context of sealed-bid auctions: in certain situations it is in
the bidder's interest to respond non-aggressively to increased
competition. We consider a decision-theoretic formulation of the
bidder's problem, and derive necessary conditions for the choice
of a non-aggressive bidding strategy. The resulting conditions
relate closely to a phenomenon that has been described rather
loosely by bidding practitioners as the "winner's curse". In the
course of this paper we develop a specific definition of the winner's
curse, and demonstrate how it affects the firm's competitive
behavior. |
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