The Spite Motive and Equilibrium Behavior in Auctions [abstract] (CiteSeerX, PDF)
John Morgan, Ken Steigltz, and George A. Reis
The B.E. Journal of Economic Analysis and Policy, Volume 2, Number 1, January 2003.
We study auctions where bidders have independent private
values but attach a disutility to the surplus of rivals, and derive
symmetric equilibria for first-price, second-price, English, and Dutch
auctions. We find that equilibrium bidding is more aggressive than
standard predictions. Indeed, in second-price auctions it is optimal
to bid above one's valuation; that is, bidding ``frenzies'' can arise in
equilibrium. Further, revenue equivalence between second-price and
first-price auctions breaks down, with second-price outperforming
first-price. We also find that strategic equivalence between
second-price and English auctions no longer holds, although they
remain revenue equivalent. We conclude that spiteful bidding
rationalizes anomalies observed in laboratory experiments across the
four auction forms better than the leading alternatives.