An experimental investigation of entry cost effects in sealed bid dollar auctions

Abstract

In numerous auction settings potential bidders incur costs to enter the auction. Such costs may potentially influence bidder’s behavior subsequently. In this paper we experimentally study the effect of entry costs on bidding and entry behavior, through a complete information common value auction. We run first and second price auctions both with and without entry costs. We find that with entry costs, players on average bid lower in first price auctions, while in second price auctions the average bids are higher, compared to bids in the corresponding no entry fee auctions.