The Hong Kong University of Science and Technology

 

Current papers (Avery 1998, Daniel and Hirshleifer 1998) conclude that seller’s

revenue decreases when jump bidding occurs, which is in sharp contrast to the fact

that jump bidding is allowed rather than forbidden by sellers in real-life auctions (e.g., Sotheby’s auctions, the FCC spectrum auctions). We conduct laboratory experiments of private-value auctions, and confirm that seller’s revenue increases significantly when jump bidding is allowed. We rationalize our experimental findings by providing a novel theory of jump bidding, which shows that jump bidding equilibria dominate the no-jump equilibrium regarding seller’s revenue, when bidders are risk averse.