About this Event
Haimeng Zhang, Cornell University-Ph.D. Candidate
Jump Bidding as a Signaling Game
Abstract: This paper studies jump bidding in an ascending-bid auction with affiliated values using a multi-round signaling model. Bidders communicate their private information with one another via the sizes of jump bids. These signals are credible since bidders with lower private information incur a higher ex ante cost for choosing a jump bid with any given size. This prevents the bidders with lower private information from mimicking those with higher private information. In equilibrium, the signaling model predicts that the size of a jump bid placed each round is bounded above by a strategy that is equivalent to one in a first-price sealed-bid auction. Using data from an FCC spectrum auction, the mean valuation estimated using the signaling model is higher compared to that of the "open exit" model. This implies that if bidders are indeed using jump bids as signals, ignoring it leads to undervaluation. In other words, bidders pay lower prices through signaling despite having high valuations. I estimate that if jump bidding was prohibited, the government could have had 8% higher revenues from the auction.
No paper for this workshop.