DP6323 If Winning Isn't Everything, Why Do They Keep Score? A Structural Empirical Analysis of Dutch Flower Auctions

Author(s): Gerard van den Berg, Bas van der Klaauw
Publication Date: June 2007
Keyword(s): data augmentation, first-price auction, Gibbs sampling, Markov Chain Monte Carlo, observing losing bids, private value, reserve price, speed of reaction
JEL(s): C15, C51, C81, D44, L11, L15, Q13
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6323

This paper provides a structural empirical analysis of Dutch auctions of houseplants at the flower auction in Aalsmeer, the Netherlands. The data set is unique for Dutch auctions in the sense that it includes observations of all losing bids in an interval adjacent to the winning bid. The size of this interval is determined by the speed of reaction of the auction participants, and as such these data are collectible due to neurological constraints on information processing. The data on losing bids are shown to be informative on the structural model determinants. The models are estimated using the Gibbs sampler with data augmentation. We take account of data limitations concerning the number of bidders. The estimation results are used to investigate whether actual reserve prices are optimal, and to determine the effects of reserve price changes.