| Abstract: |
We study actual bidding behavior when a new auction format gets introduced
into the marketplace. More specifically, we investigate this question using a
novel data set on internet display ad auctions that exploits a staggered
adoption by different publishers (sellers) of first-price auctions (FPAs), in
place for the traditional second-price auctions (SPAs). Event study regression
estimates indicate a significant jump, immediately after the auction format
change, in revenue per sold impression (price) of the treated publishers
relative to that of control publishers, ranging from 35% to 75% of
pre-treatment price levels of the treated group. Further, we observe that in
later auction format changes the lift in price relative to SPAs dissipates
over time, reminiscent of the celebrated revenue equivalence theorem. We take
this as evidence of initially insufficient bid shading after the format change
rather than an immediate shift to a new Bayesian Nash equilibrium. Prices then
went down as bidders learned to shade their bids. We also show that bidders
sophistication impacted their response to the auction format change. Our work
constitutes one of the first field studies on bidders' responses to auction
format changes, providing an important complement to theoretical model
predictions. As such, it provides valuable information to auction designers
when considering the implementation of different formats. |