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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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References

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  1. Engelbrecht-Wiggans, Richard, 1994. "Sequential auctions of stochastically equivalent objects," Economics Letters, Elsevier, vol. 44(1-2), pages 87-90.
  2. Bernhardt, Dan & Scoones, David, 1994. "A Note on Sequential Auctions," American Economic Review, American Economic Association, vol. 84(3), pages 653-57, June.
  3. McAfee R. Preston & Vincent Daniel, 1993. "The Declining Price Anomaly," Journal of Economic Theory, Elsevier, vol. 60(1), pages 191-212, June.
  4. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
  5. von der Fehr, N.-H. M. & Riis, C., 1998. "Option Values in Sequential Markets," Memorandum 07/1998, Oslo University, Department of Economics.
  6. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
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Cited by:
  1. Coatney, Kalyn T. & Shaffer, Sherrill L. & Menkhaus, Dale J., 2012. "Auction prices, market share, and a common agent," Journal of Economic Behavior & Organization, Elsevier, vol. 81(1), pages 61-73.
  2. Jeitschko, Thomas D., 1999. "Equilibrium price paths in sequential auctions with stochastic supply," Economics Letters, Elsevier, vol. 64(1), pages 67-72, July.
  3. Leufkens Kasper & Peeters Ronald & Vermeulen Dries, 2010. "Sequential auctions with synergies: The paradox of positive synergies," Research Memorandum 007, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  4. Leufkens, Kasper & Peeters, Ronald, 2006. "Synergies are a reason to prefer first-price auctions!," Research Memorandum 034, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  5. Flavio Menezes & Paulo Monteiro, 2003. "Synergies and price trends in sequential auctions," Review of Economic Design, Springer, vol. 8(1), pages 85-98, August.
  6. Mezzetti, Claudio, 2008. "Aversion to Price Risk and the Afternoon Effect," The Warwick Economics Research Paper Series (TWERPS) 857, University of Warwick, Department of Economics.
  7. Veronika Grimm, 2006. "Sequential versus Bundle Auctions for Recurring Procurement," Working Paper Series in Economics 27, University of Cologne, Department of Economics.
  8. Münster, Johannes, 2008. "Repeated contests with asymmetric information," Discussion Papers, Research Unit: Market Processes and Governance SP II 2008-08, Social Science Research Center Berlin (WZB).
  9. Veronika Grimm, 2004. "On Procurement Auctions Of Complementary Goods," Working Papers. Serie AD 2004-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  10. Saini, Viplav, 2010. "Reserve prices in a dynamic auction when bidders are capacity-constrained," Economics Letters, Elsevier, vol. 108(3), pages 303-306, September.
  11. Ding, Wei & Jeitschko, Thomas D. & Wolfstetter, Elmar G., 2010. "Signal jamming in a sequential auction," Economics Letters, Elsevier, vol. 108(1), pages 58-61, July.
  12. Klenio Barbosa & Pierre C. Boyer, 2012. "Discrimination in Dynamic Procurement Design with Learning-by-doing," CESifo Working Paper Series 3947, CESifo Group Munich.
  13. De Silva, Dakshina G. & Jeitschko, Thomas D. & Kosmopoulou, Georgia, 2005. "Stochastic synergies in sequential auctions," International Journal of Industrial Organization, Elsevier, vol. 23(3-4), pages 183-201, April.
  14. Mireia Jofre-Bonet & Martin Pesendorfer, 2006. "Optimal sequential auctions," LSE Research Online Documents on Economics 4911, London School of Economics and Political Science, LSE Library.
  15. Das Varma, Gopal, 2003. "Bidding for a process innovation under alternative modes of competition," International Journal of Industrial Organization, Elsevier, vol. 21(1), pages 15-37, January.
  16. Xiaoshu Xu & Dan Levin & Lixin Ye, 2012. "Auctions with synergy and resale," International Journal of Game Theory, Springer, vol. 41(2), pages 397-426, May.

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