Empirical bias of extreme-price auctions: analysis

Abstract

We advance empirical equilibrium analysis (Velez and Brown, 2020, arXiv:1907.12408) of the winner-bid and loser-bid auctions for the dissolution of a partnership. We show, in a complete information environment, that even though these auctions are essentially equivalent for the Nash equilibrium prediction, they can be expected to differ in fundamental ways when they are operated. Besides the direct policy implications, two general consequences follow. First, a mechanism designer who accounts for the empirical plausibility of equilibria may not be constrained by Maskin invariance. Second, a mechanism designer who does not account for the empirical plausibility of equilibria may inadvertently design biased mechanisms.