Quality Communication via Cheap-Talk Messages in Auctions: Experimental Analysis

Abstract
We provide an experimental analysis of cheap-talk communication of quality information under four different auction formats: first-price (FPA), second-price (SPA), all-pay (APA), and sealed-bid double auctions (DA). We do this under two competition levels: (1) five buyers choosing among two concurrent auctions and (2) two buyers choosing between five concurrent auctions. The seller's product quality is uncertain, either high or low, but can be communicated via cheap-talk claims. We show that under certain circumstances, low-quality sellers can benefit from honestly communicating their low quality. These circumstances are riskier auction formats, such as APA or DA, and buyers having more market power. In all FPA/SPA treatments and APA/DA treatments, where buyers had the weakest market power, making a high-quality claim was more profitable.Joint paper with Jaesun Lee.