Comparison of Vickrey Second-Price and Random nth-Price
Auctions for Analyzing Country of Origin Labeling in
Taiwan
Keywords: Auction, Origin Labeling, Tobit, Bid Premium, Taiwan
JEL Classifications: Q13, D12.
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Abstract
The purpose of this study is to compare the random nth-price auction with the
widely used Vickrey second-price auction in an empirical application. It has been
shown that the second-price auction does not induce sincere bidding for those who are
off-margin of the market cleaning price. The random nth-price auction can correct this
drawback. These two auction methods were applied and compared for investigating
the economic benefits for the country of origin labeling (COOL) regulation in Taiwan.
The consumer’s willingness to pay (WTP) premiums for oolong tea produced in
Taiwan vs. those imported from China and Vietnam were elicited using these two
experimental auctions. Auction results revealed very different bidding behaviors. The
random nth-price auction appeared to induce more reasonable bidding than the
second-price auction in this study. Tobit and OLS models were used to estimate the
bid and premium functions. Econometric results from both auction methods all
showed that participants were willing to pay very high premiums for Taiwan oolong
tea over those from China and Vietnam. The net price premiums for Taiwan oolong
tea due to COOL are estimated to be 34% over Vietnam tea and 40% over China tea.
These results have important policy implications for agricultural trade between
Taiwan and China.
Auctions for Analyzing Country of Origin Labeling in
Taiwan
Keywords: Auction, Origin Labeling, Tobit, Bid Premium, Taiwan
JEL Classifications: Q13, D12.
**************
Abstract
The purpose of this study is to compare the random nth-price auction with the
widely used Vickrey second-price auction in an empirical application. It has been
shown that the second-price auction does not induce sincere bidding for those who are
off-margin of the market cleaning price. The random nth-price auction can correct this
drawback. These two auction methods were applied and compared for investigating
the economic benefits for the country of origin labeling (COOL) regulation in Taiwan.
The consumer’s willingness to pay (WTP) premiums for oolong tea produced in
Taiwan vs. those imported from China and Vietnam were elicited using these two
experimental auctions. Auction results revealed very different bidding behaviors. The
random nth-price auction appeared to induce more reasonable bidding than the
second-price auction in this study. Tobit and OLS models were used to estimate the
bid and premium functions. Econometric results from both auction methods all
showed that participants were willing to pay very high premiums for Taiwan oolong
tea over those from China and Vietnam. The net price premiums for Taiwan oolong
tea due to COOL are estimated to be 34% over Vietnam tea and 40% over China tea.
These results have important policy implications for agricultural trade between
Taiwan and China.