Analysis of Affiliation, Entry, and Bidding in First-Price Auctions with Heterogeneous Bidders

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This award funds research to develop new statistical methods for analyzing data on how individuals behave in strategic situations. The major focus is to develop new econometric techniques for analyzing bidder behavior in auctions. The principal investigator develops a method that can be applied to test new theories about why and when new bidders enter an auction with an initial bid when entry behavior is observed, bidders' private values and entry costs are affiliated, and potential bidders are asymmetric. This test is intuitive and uses a recently developed simulation method that may also be useful in a variety of other applications.The second goal of this project is developing a structural econometric model that can be used for situations with affiliated and asymmetric bidders. The structural approach adopted in this research overcomes a number of difficulties with previous methods. The PI illustrates the advantages of the new method by using it to analyze data from timber auctions.This research has broader impact in two ways. The approach developed here can also be used to develop new statistical techniques for analyzing data on other kinds of strategic decision making. The specific results of the timber auction data analysis will help state and Federal policymakers who must decide the procedures for using natural resources.