Auction Experiments

In this experiment we are going to set up a series of auctions markets in which there are a number of buyers and a single seller. The information that you need to make bids is contained on two playing cards. Face cards have been removed from the decks so that all remaining cards have a number. The number on each card represents your willingness to pay (WTP) for the private good. The black card is the first digit and the red card is the second digit of your WTP. For each if you receive a 7 of spades and a 6 of hearts, your WTP is $76.

Your earnings are equal to the difference between your WTP and what you actually must pay. For example, if your WTP is $76, you bid $52 and $52 is the highest bid, your earnings are $24. All bids must be in units of $1. During each round you will receive a different pair of cards. Record your earnings on the record sheet.

English Auction

The auctioneer first solicits an opening bid from somebody in the group. Then he asks if anyone has a higher bid. Anyone who wants to bid should call out a new price that is at least higher than the previous high bid. The bidding continues until all bidders but one have dropped out. The highest bidder gets the good being sold for a price equal to the final bid.

Dutch Auction

The auctioneer starts with a price that he knows is higher than anyone's maximum willingness to pay and lowers the price gradually until some buyer signals. The first buyer to signal gets the good at the price the auctioneer called just before the signal was made.

Sealed-Bid, First-Price Auction

Bidders write their bids for the good and their names on slips of paper and deliver them to the auctioneer. The auctioneer examines the bids and sells the object to the highest bidder at the price that he or she bid. Ties will be settled by the method commonly used in Japan to settle ties, which is to play a game of "rock-paper-scissors."

Sealed-Bid, Second-Price Auction

Bidders write their bids for the good and their names on slips of paper and deliver them to the auctioneer. The auctioneer examines the bids and sells the object to the highest bidder at the price bid by the second-highest bidder. Ties will be settled by the method commonly used in Japan to settle ties, which is to play a game of "rock-paper-scissors."

Random Price Auction

Bidders write their bids for the good on a sheet of paper. The auctioneer randomly selects a price. All bidders with bids greater than the price are eligible to receive the good. The winning bidder will be randomly selected.