Empirical Documentation of Bid Shading in the Discriminatory Auction
2017
Elskamp, Rebecca
This manuscript provides an empirical documentation of the existence and magnitude of heterogeneous bidshading in the discriminatory auction. Unlike existing empirical work that uses aggregate data, this manuscriptmakes use of a unique data set collected at the individual bidder level containing bidding behaviour anddetailed cost information covering a natural experiment in which the format of the auction switches fromuniform to discriminatory pricing. Preliminary regression results indicate that bid prices in the discriminatoryauction are $1,813 lower than bid prices in the uniform auction. In other words, the magnitude ofbid shading in the discriminatory price auction is on average 6.3% of bidders’ willingness to pay. Capacityutilization, housing type and milking system are bidder-specific characteristics identified as determinantsin explaining heterogeneity in bid shading across bidders. In terms of allocativeefficiency, the uniform auction achieves a higher average efficiency of 91% compared to an average efficiencyof 74% reached by the discriminatory auction. The majority of the inefficiency of the discriminatory auctionis attributed to the use of bid-spreading strategies while the remaining portion of inefficiency is due to heterogeneousbid shading across bidders. All auction inefficiency identified in the uniform auction is attributedto the use of bid-spreading strategies.
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