Leadership

Entry And Selection In Auctions

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Executive Summary

The authors develop and estimate an entry model for second price and open outcry independent private value auctions where potential bidders receive an imperfectly informative signal about their value prior to deciding whether to pay a sunken entry cost. In this way the model flexibly allows for selection on values, which will affect an entrant's subsequent competitiveness, at the entry stage. As signals become more informative, the entry process exhibits greater selection as firms with higher values are more likely to enter. They allow for asymmetries across bidders and unobserved heterogeneity across auctions, which are important features of most data sets.

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