Reputation in Repeated Second Price Auctions

1985| Working Paper No. 815

Often, the same set of bidders take part in a series of similar but independent auctions. If bidders draw inferences from the past behaviour of others, then the auctions cannot be analysed independently. In particular, this paper shows that it pays to maintain a reputation for bidding aggressively in repeated common-value, second price auctions since the ~winners curse for the other bidders is intensified causing them to submit lower bids in subsequent auctions. Consequently, the sellers revenues are lower when there is an incentive for a bidder to maintain such a reputation. In fact benefits from aggressive bidding are so great that second price, common-value auctions in repeated settings seem to be highly susceptible to such manipulative behaviour.