Synergies and price trends in sequential auctions
AbstractIn this paper we consider sequential second-price auctions where an individual's value for a bundle of objects is either greater than the sum of the values for the objects separately (positive synergy) or less than the sum (negative synergy). We show that the existence of positive synergies implies declining expected prices. When synergies are negative, expected prices are increasing. There are several corollaries. First, the seller is indifferent between selling the objects simultaneously as a bundle or sequentially when synergies are positive. Second, when synergies are negative, the expected revenue generated by the simultaneous auction can be larger or smaller than the expected revenue generated by the sequential auction. In addition, in the presence of positive synergies, an option to buy the additional object at the price of the first object is never exercised in the symmetric equilibrium and the seller's revenue is unchanged. Under negative synergies, in contrast, if there is an equilibrium where the option is never exercised, then equilibrium prices may either increase or decrease and, therefore, the net effect on the seller's revenue of the introduction of an option is ambiguous. Finally, we examine a special case with asymmetric players who have distinct synergies. In this example, even if one player has positive synergies and the other has negative synergies, it is still possible for expected prices to decline. Copyright Springer-Verlag Berlin/Heidelberg 2003
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Volume (Year): 8 (2003)
Issue (Month): 1 (August)
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Other versions of this item:
- Menezes, Flavio Marques & Monteiro, Paulo Klinger, 1999. "Synergies and Price Trends in Sequential Auctions," Economics Working Papers (Ensaios Economicos da EPGE) 360, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
- Menezes, F. & Monteiro, P.K., 1999. "Synergies and Price Trends in Sequential Auctions," Papers 366, Australian National University - Department of Economics.
- Paulo Klinger Monteiro & Flavio Menezes, 1999. "Synergies and Price Trends in Sequential Auctions," Microeconomics 9901002, EconWPA, revised 03 Feb 1999.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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