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Prices and the Winner's Curse

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Author Info

  • Jeremy Bulow
  • Paul Klemperer

Abstract

We usually assume that increases in supply, allocation by rationing, and exclusion of potential buyers reduce prices. But all these activities raise the expected price in an important set of cases when common-value assets are sold. Furthermore, when we make the assumptions needed to rule out these ``anomalies'' for symmetric buyers, small asymmetries among the buyers necessarily cause the anomalies to reappear. Our results help explain rationing in initial public offerings and outcomes of spectrum auctions. We illustrate our results in the ``Wallet Game'' and in another new game we introduce, the ``Maximum Game.''

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 33 (2002)
Issue (Month): 1 (Spring)
Pages: 1-21
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:rje:randje:v:33:y:2002:i:spring:p:1-21

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