The Effect of Timing on Bid Increments in Ascending Auctions

Auctions. Katok gratefully acknowledges the support of the National Science Foundation. The authors also thank Diana Wu for her assistance in completing the experiments and performing initial data analysis. We investigate the role of timing in ascending auctions under the premise that time is a valuable resource. Traditional models of the English auction ignore timing issues by assuming that the auction occurs instantaneously. However, when auctions are slow, as internet auctions used for procurement often are, there are significant opportunity or monitoring costs to bidders, and the choice of the bid increment level becomes a strategic decision. We study the choice of bid increments in the experimental laboratory by systematically altering the opportunity costs associated with fast bidding. We find that when time is more valuable bidders respond by bidding larger increments. Surprisingly, the economic performance of the auction is not significantly affected. We develop a simple model of ascending auctions with impatient bidders that provides insights into the effect bid increments have on auction performance.