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Auctions of Homogeneous Goods with Increasing Returns: Experimental Comparison of Alternative "Dutch" Auctions

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Author Info

  • Elena Katok

    ()
    (Smeal College of Business, Pennsylvania State University, University Park, Pennsylvania 16802)

  • Alvin E. Roth

    ()
    (Department of Economics, Harvard University, and Harvard Business School, Boston, Massachusetts 02163)

Abstract

Most business-to-business (B2B) auctions are used to transact large quantities of homogeneous goods, and therefore use multiunit mechanisms. In the B2B context, bidders often have increasing returns to scale, or synergies. We compare two commonly used auction formats for selling multiple homogeneous objects, both sometimes called "Dutch" auctions, in a set of value environments that include synergies and potentially subject bidders to the "exposure" and "free-riding" problems. We find that the descending-price auction, best known for its use in the Dutch flower auctions, is robust and performs well in a variety of environments, although there are some situations in which the ascending uniform-price auction similar to the one used by eBay better avoids the free-riding problem. We discuss the factors that influence each mechanism's performance in terms of the overall efficiency, the informational requirements, the seller's revenue, and the buyer's profit.

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File URL: http://dx.doi.org/10.1287/mnsc.1040.0254
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 50 (2004)
Issue (Month): 8 (August)
Pages: 1044-1063

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Handle: RePEc:inm:ormnsc:v:50:y:2004:i:8:p:1044-1063

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Related research

Keywords: multiunit auctions; procurement auctions; supply chain management; experimental economics;

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Cited by:
  1. Kleijnen, Jack P.C. & van Schaik, Frans D.J., 2011. "Sealed-bid auction of Netherlands mussels: Statistical analysis," International Journal of Production Economics, Elsevier, vol. 132(1), pages 154-161, July.
  2. van den Berg, Gerard J & van der Klaauw, Bas, 2007. "If Winning Isn't Everything, Why Do They Keep Score? A Structural Empirical Analysis of Dutch Flower Auctions," CEPR Discussion Papers 6323, C.E.P.R. Discussion Papers.
  3. Larson, Nathan & Elmaghraby, Wedad, 2008. "Procurement auctions with avoidable fixed costs: an experimental approach," MPRA Paper 32163, University Library of Munich, Germany, revised 2011.
  4. repec:dgr:uvatin:2007041 is not listed on IDEAS
  5. Kagel, John H. & Levin, Dan, 2005. "Multi-unit demand auctions with synergies: behavior in sealed-bid versus ascending-bid uniform-price auctions," Games and Economic Behavior, Elsevier, vol. 53(2), pages 170-207, November.
  6. Kan Takeuchi & John Lin & Yan Chen & Thomas Finholt, 2010. "Scheduling with package auctions," Experimental Economics, Springer, vol. 13(4), pages 476-499, December.
  7. Lawrence M. Ausubel & Paul Milgrom, 2002. "Ascending Auctions with Package Bidding," Working Papers 02004, Stanford University, Department of Economics.
  8. Lawrence M. Ausubel & Paul Milgrom, 2005. "Ascending Proxy Auctions," Levine's Bibliography 122247000000000785, UCLA Department of Economics.
  9. Axel Ockenfels & David Reiley & Abdolkarim Sadrieh, 2006. "Online Auctions," NBER Working Papers 12785, National Bureau of Economic Research, Inc.
  10. Cong, Rong-Gang & Wei, Yi-Ming, 2012. "Experimental comparison of impact of auction format on carbon allowance market," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(6), pages 4148-4156.
  11. repec:ebl:ecbull:v:4:y:2004:i:8:p:1-14 is not listed on IDEAS
  12. Elmaghraby, Wedad J. & Larson, Nathan, 2012. "Explaining deviations from equilibrium in auctions with avoidable fixed costs," Games and Economic Behavior, Elsevier, vol. 76(1), pages 131-159.

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