Thursday, October 22, 2009

Economic Papers on Penny Auctions

If you love economics read these two great academic papers on Penny Auctions. If you don't love economics, wait till tomorrow (more urgent things came up and this will have to wait, maybe by the end of the week) and I will provide a layman's summary of both. These papers are the best I've seen and provide a depth of analysis that has incredible value for anyone who plays penny auctions, is thinking about playing or operates a penny auction site.

For example, Edward Augenblick states in his paper (1), "the top 11% of bidders in terms of experience create more than 50% of the total profit [for Swoopo, which was where the data was collected]." He also finds that there is value added for experience, calculates Swoopo profit margins and makes quite a few interesting remarks.

Augenblick states, "There are strategies that have significant effects on the estimates of the effect of experience. Broadly, the most important appears to be "bidding aggressively," in which a player bids extremely quickly following another player's bids."

1) Pay-As-You-Go: Theoretical and Empirical Analysis of a New Auction Format by Edward Augenblick at Stanford:

2) Penny Auctions by Toomas Hinnosaar at Northwestern:

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