Bidding strategies in a bilateral monopoly with two-sided incomplete information

Abstract Two experiments examine the sealed-bid double auction mechanism used to structure bilateral monopoly under incomplete information. The investigation is driven by two competitive models—a linear symmetric equilibrium model predicting strategic behavior and truthful revelation model postulating honest bidding. The results show that both sellers and buyers behave strategically, though not to the extent predicted by the equilibrium model. When the bidding strategies are elicited directly rather than inferred indirectly from actual play, they become more monotonic and reveal a higher frequency of honest bidding. When the sellers and buyers are not symmetric, "step function" bidding strategies appear after a relatively small number of bargaining rounds.