Creating competition out of thin air: Market thickening and right-to-choose auctions
AbstractWe study a procedure for selling multiple heterogenous goods, which is commonly used in practice but rarely studied in the literature. The novel feature of this procedure is that instead of selling the goods themselves, the seller offers buyers the right to choose among the available goods. Thus, buyers who are after completely different goods are forced to compete for the same good, the âright to chooseâ. Competition can be further enhanced by restricting the number of rights that are sold. This is shown both theoretically and experimentally. Our main experimental finding is that by auctioning ârights-to-chooseâ rather than the goods themselves, the seller induces an aggressive bidding behaviour that generates more revenue than the theoretical optimal mechanism.
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Date of creation: 30 Oct 2003
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- Eliaz, Kfir & Offerman, Theo & Schotter, Andrew, 2004. "Creating Competition Out of Thin Air: Market Thickening and Right-to-Choose Auctions," CEPR Discussion Papers 4678, C.E.P.R. Discussion Papers.
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-11-03 (All new papers)
- NEP-COM-2003-11-03 (Industrial Competition)
- NEP-IND-2003-11-03 (Industrial Organization)
- NEP-MFD-2003-11-03 (Microfinance)
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