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Standard Auctions with Identity-Dependent Externalities

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  • Gopal Das Varma
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    Abstract

    I analyze equilibrium bidding behavior in the open ascending-bid auction with identity-dependent externalities. With reciprocal externalities, the allocation is determined by bidders' consumption values alone. With large nonreciprocal externalities, the open auction generates higher expected revenue compared to standard sealed-bid auctions. The progress of the open auction reveals more information about the identity of the potential winner, allowing active bidders greater opportunity to avoid incurring payoff-reducing externalities. The associated option value to staying active up until a relatively high price translates into higher expected revenue. Multiple bidders may sequentially quit at the same price, and relative to sealed-bid auctions, bidders experience less ex post regret.

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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): 4 (Winter)
    Pages: 689-708

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    Handle: RePEc:rje:randje:v:33:y:2002:i:winter:p:689-708

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    Cited by:
    1. Ettinger, David, 2003. "Efficiency in auctions with crossholdings," Economics Papers from University Paris Dauphine 123456789/5448, Paris Dauphine University.
    2. Hu, Youxin & Kagel, John & Xu, Xiaoshu & Ye, Lixin, 2012. "Theoretical and Experimental Analysis of Auctions with Negative Externalities," MPRA Paper 47060, University Library of Munich, Germany.
    3. Jacob K. Goeree & Theo Offerman & Randolph Sloof, 2009. "Demand reduction and preemptive bidding in multi-unit license auctions," IEW - Working Papers 430, Institute for Empirical Research in Economics - University of Zurich.
    4. Kaplan, Todd R & Zamir, Shmuel, 2014. "Advances in Auctions," MPRA Paper 54656, University Library of Munich, Germany.

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