Bidding for Clubs
AbstractThis paper studies the mechanism by which club memberships, activities, and rules are chosen in a decentralized economy. For this purpose, we develop a model of competing auctions for club goods. This is a dynamic game where each seller first chooses an auction format; next, each buyer chooses a seller; and, finally, each buyer bids for membership. If sellers are restricted to simple auctions without reserve prices, then the decentralized equilibrium is generally inefficient across a multitude of important margins. However, if the sellers can compete by a broader class of auctions - and where the anonymity of buyer strategies implies coordination frictions - the sellers generally choose negative reserve prices and the equilibrium is constrained efficient. The advertisement of a negative reserve price is equivalent to the advertisement of an amenity that augments the value of the club good. The function of this amenity is to ensure a critical mass of bidders at the seller’s location. For example, if a firm is attempting to assemble a team to utilize a club good at its location, it will also choose to advertise commitment to an additional amenity, such as a set of free health club memberships, as a means to attract a critical mass of applicants.
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Bibliographic InfoPaper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2013-19.
Date of creation: 18 Sep 2013
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Web page: http://www.econ.au.dk/afn/
clubs; coordination frictions; Mortensen tax; Hosios rule; competing auctions;
Find related papers by JEL classification:
- D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
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