Essays in the empirical analysis of auction markets

This dissertation contains three essays sharing a common goal: to understand observed bidding behavior in different auction settings through the eyes of economic theory, and to make empirically-grounded policy suggestions to improve the performance of the market mechanism. The first essay is an empirical assessment of a long-standing question on mechanism design: should a discriminatory or a uniform price mechanism be used to auction government debt? The essay first develops a model of strategic behavior in a discriminatory auction. Based on this model, an estimation method is developed to reconstruct the distribution of marginal valuations using data on individual bids. Applying the method to data from 3-month Treasury bill auctions conducted by the Turkish Treasury between 1991 and 1993, it is found that the discriminatory auction yielded more revenue to the Turkish Treasury than in the hypothetical uniform price alternative. The second essay delves deeper into the study of Treasury auctions to develop and test theories of strategic bidding behavior. Relying on the first-order approach developed in the first essay, equilibrium behavior in the discriminatory auction game is characterized for a variety of settings. Several hypotheses regarding the response of equilibrium bid strategies to changes in exogenous factors such as uncertainty in the value of the security and changes in the number of bidders are empirically validated. In the third essay, the focus shifts to bidding behavior in eBay coin auctions. This essay develops new econometric techniques to estimate a structural model of bidding to address three main issues. The first goal is to quantify the extent of the winner's curse. For a representative auction in our sample, it is found that a bidder's expected profits fall by three percent when the expected number of bidders increases by one. Second, the entry process of potential bidders into an auction is modelled explicitly. Third, using counterfactual simulations, sellers' observed choice of reserve prices are evaluated. It is found that observed reserve price strategies are consistent with maximizing behavior predicted by the structural model.