Publication Date: November 2003
We develop tests for common values at ﬁrst-price sealed-bid auctions. Our tests are nonparametric, require observations only of the bids submitted at each auction, and are based on the fact that the “winner’s curse” arises only in common values auctions. The tests build on recently developed methods for using observed bids to estimate each bidder’s conditional expectation of the value of winning the auction. Equilibrium behavior implies that in a private values auction these expectations are invariant to the number of opponents each bidder faces, while with common values they are decreasing in the number of opponents. This distinction forms the basis of our tests. We consider both exogenous and endogenous variation in the number of bidders. Monte Carlo experiments show that our tests can perform well in samples of moderate sizes. We apply our tests to two diﬀerent types of U.S. Forest Service timber auctions. For unit-price (“scaled”) sales often argued to ﬁt a private values model, our tests consistently fail to ﬁnd evidence of common values. For “lumpsum” sales, where a priori arguments for common values appear stronger, our tests yield mixed evidence against the private values hypothesis.
First-price auctions, Common values, Private values, Nonparametric testing, Winner’s curse, Stochastic dominance, Endogenous participation, Timber auctions