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Scale Economies and the Dynamics of Recurring Auctions

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  • Thomas D. Jeitschko

    () (Department of Economics, Michigan State University, East Lansing, MI 48824.)

  • Elmar Wolfstetter

    () (Institut f. Wirtschaftstheorie I, Humboldt-Universit”t zu Berlin, Spandauer Str. 1, 10178 Berlin, Germany.)

Abstract

We analyze the dynamics of a game of sequential bidding in the presence of stochastic scale effects, either economies or diseconomies of scale. We show that economies of scale give rise to declining expected equilibrium prices, whereas the converse is not generally true. Moreover, first- and second-price auctions are not always revenue equivalent. Economies of scale make second-price auctions more profitable for the seller, whereas revenue equivalence may be preserved in the case of diseconomies. Copyright 2002, Oxford University Press.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 40 (2002)
Issue (Month): 3 (July)
Pages: 403-414

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Handle: RePEc:oup:ecinqu:v:40:y:2002:i:3:p:403-414

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  1. Bernhardt, Dan & Scoones, David, 1994. "A Note on Sequential Auctions," American Economic Review, American Economic Association, vol. 84(3), pages 653-57, June.
  2. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
  3. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
  4. McAfee R. Preston & Vincent Daniel, 1993. "The Declining Price Anomaly," Journal of Economic Theory, Elsevier, vol. 60(1), pages 191-212, June.
  5. von der Fehr, N.-H. M. & Riis, C., 1998. "Option Values in Sequential Markets," Memorandum 07/1998, Oslo University, Department of Economics.
  6. Engelbrecht-Wiggans, Richard, 1994. "Sequential auctions of stochastically equivalent objects," Economics Letters, Elsevier, vol. 44(1-2), pages 87-90.
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