Seller Behavior in Common Value Auctions: Cursed and Cursed Again

Abstract: In common value auctions the winning bid often exceeds the value of the good purchased. This “winner’s curse ” is bad for the buyers, but good for the sellers. Given this, people bidding for the right to resell a good might be expected to bid more than the expected value. Furthermore, if sellers have different forecasts about the extent of the winner’s curse among buyers, then the value of the right to resell is in turn a common value good, and potential sellers might even be expected to suffer from a winner’s curse of their own. In this paper I report on results from a new experiment where one group of people enter an auction for the right to auction a common value good to another group. I find a winner’s curse among the buyers, extending the results others have found into a new experimental setting where the auctioneer is a participant in the experiment, rather than the experimenter. I also find that the sellers do overbid, and so suffer from a curse of their own.