Working Paper: CEPR ID: DP17673
Authors: Julien Martin; Martin Pesendorfer; Jack Shannon
Abstract: Common values auction models, where bidder decisions depend on noisy signals of common values, provide predictions about Bayesian Nash equilibrium (BNE) outcomes. In settings where these common values can be estimated, these predictions can be tested. We propose a series of tests, robust to assumptions about the signal structure, to determine whether the observed data could have been generated by a Bayesian Nash equilibrium. In the setting of oil and gas lease auctions in New Mexico, we find evidence that participation decisions are correlated and that participants systematically underbid in light of ex post outcomes.
Keywords: Testing; Collusion; Auctions
JEL Codes: D44; L10; L40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Participation decisions among bidders are correlated (D44) | Null hypothesis of independence in participation decisions is rejected (D79) |
| Systematic underbidding (D44) | Bidders' bids are significantly lower than expected in a competitive equilibrium (D44) |
| Bidders' bids are significantly lower than expected in a competitive equilibrium (D44) | Violation of Bayesian Nash Equilibrium (BNE) (C73) |
| Correlated participation decisions (D79) | Suggests potential collusion among bidders (D44) |