Dynamic Jump Bidding and Seller Revenue in Ascending Auctions: A Theoretical and Experimental Investigation

Abstract

This study extends the understanding of jump bidding in ascending auctions by introducing a multi-round dynamic framework. While traditional theories suggest jump bidding reduces seller revenue, recent work by Lim and Xiong (2021) demonstrated its potential to increase revenue with risk-averse bidders. Our research proposes a theoretical model for dynamic jump bidding with multiple signaling stages and empirically tests its implications through a laboratory experiment incorporating an Amended Random Payment (ARP) design. We hypothesize that dynamic jump bidding, by allowing for sustained risk premium extraction from risk-averse bidders, will lead to significantly higher seller revenue compared to static jump bidding or no jump bidding. experimental results provide compelling evidence supporting this hypothesis, highlighting the crucial role of bidder risk aversion and the dynamic nature of bidding in enhancing auction outcomes for sellers.