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Abstract

Auctions are commonly used when a seller is unsure about the values that potential buyers attach to the object being sold. Bidders’ willingness to pay can be elicited in the form of bids. Many auctions are designed to be truth revealing such that bidders’ optimal strategy is to bid their true value. However, people sometimes do not bid sincerely; in particular off-margin bidders, whose values are far below or above the market-clearing price, are often observed not to bid sincerely (Shorgen et al. 2001). Low-value bidders might believe they will never win, while high-value bidders might believe they will never lose. Therefore, off-margin bidders often do not reveal their true values (Miller and Plott, 1985; Franciosi et al. 1993). For example, Knetsch et al. (2001) found that a second-price auction might not engage low-value bidders, whereas a ninth-price auction might not engage high value bidders. This paper presents a combined choice ranking and 11th-price sealed-bid auction mechanism which reveals the values of both on- and off- margin consumers for seven fruit products. Unlike experimental auctions that use lab-induced values to generate on- and off-margin bidders, the choice rankings reveal bidders’ preference and signal their relative positions on the value distributions. We found that low-value bidders tend not to bid attentively while high-value bidders place bids strongly agreeing with their rankings of the products. Our approach provides an effective mechanism to discriminate sincere bidders from casual bidders and improves the reliability of the elicitation of consumer valuations.

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