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Brishti Guha
''Malice in auctions and commitments to cancel''
( 2018, Vol. 38 No.3 )
A bidder is “malicious” if his valuation includes, apart from his intrinsic valuation for the object, a malice component from depriving other bidders. A bidder has malice even if the auction is cancelled as this prevents the other bidder from getting the object. I consider a second price sealed bid auction of a single object with two potentially malicious bidders. Valuations, including malice components, are private knowledge. Suppose the seller commits to cancel the auction if either bidder drops out. Then, while bidders with standard preferences never drop out, malicious bidders do so over a non-empty parameter range, and the auction is cancelled despite the absence of any entry fees or reserve prices. This could also be true of spiteful bidders. However, if valuations are common knowledge, the bidder with the higher intrinsic valuation never drops out in an auction with two spiteful bidders (given the seller's commitment to cancel if he does): however, in an auction with two malicious bidders, both might drop out. Experimenters might thus be able to distinguish between (i) standard bidders versus malicious or spiteful ones, and (ii) spiteful versus malicious bidders. For specific distribution functions, the tendency to drop out is increasing in the bidder's malice.
Keywords: Malice, auctions.
JEL: D4 - Market Structure and Pricing: General
D1 - Household Behavior: General
Manuscript Received : Jan 19 2018 Manuscript Accepted : Sep 07 2018

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