What Model for Entry in First-price Auctions? A Nonparametric Approach

Joint with: Vadim Marmer and Pai Xu, University of British Columbia

We develop a nonparametric approach that allows one to discriminate among alternative models of entry in first-price auctions. Three models of entry are considered:

Levin and Smith (1994), Samuelson (1985), and a new model in which the information received at the entry stage is imperfectly correlated with valuations. We derive testable restrictions that these three models impose on the quantiles of active bidders' valuations, and develop nonparametric tests of these restrictions. We implement the

tests on a dataset of highway procurement auctions in Oklahoma. Depending on the project size, we find no support for the Samuelson model, some support for the Levin

and Smith model, and somewhat more support for the new model.

For more information, contact Petra Todd.