Demand Reduction and Pre-emptive Bidding in Multi-Unit License Auctions

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Demand Reduction and Pre-emptive Bidding in Multi-Unit License Auctions

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Goeree, Jacob K.
Offerman, Theo
Sloof, Randolph

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Abstract

Multi-unit ascending auctions allow for equilibria in which bidders strategically reduce their demand and split the market at low prices. At the same time, they allow for pre-emptive bidding by incumbent bidders in a coordinated attempt to exclude entrants from the market. We consider an environment where both demand reduction and pre-emptive bidding are supported as equilibrium phenomena of the ascending auction. In a series of experiments, we compare its performance to that of the discriminatory auction. Strategic demand reduction is quite prevalent in the ascending auction even when entry by the newcomer imposes a (large) negative externality on incumbents. As a result, the ascending auction performs worse than the discriminatory auction both in terms of revenue and efficiency, while the two auction formats offer similar chances for newcomers to enter the market.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4899.

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Date of creation: Feb 2005
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Handle: RePEc:cpr:ceprdp:4899

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Paper
- Jacob Goeree & Theo Offerman & Randolph Sloof, 2004. "Demand Reduction and Preemptive Bidding in Multi-Unit License Auctions," Tinbergen Institute Discussion Papers 04-122/1, Tinbergen Institute. [Downloadable!]

Find related papers by JEL classification:
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-06-14 (All new papers)
NEP-EXP-2005-06-14 (Experimental Economics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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Other versions:
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Other versions:
- Jehiel, Phillipe & Moldovanu, Benny, 1998. "Efficient Design with Interdependent Valuations," Sonderforschungsbereich 504 Publications 98-22, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
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