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

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Author Info
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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Related research
Keywords: demand reduction; external effects; multi-license auctions;

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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

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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:
  4. Moldovanu, Benny & Ewerhart II, Christian, 2002. "A Stylized Model of the German UMTS Auction," Sonderforschungsbereich 504 Publications 02-07, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
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  16. Dufwenberg, Martin & Gneezy, Uri, 2000. "Price competition and market concentration: an experimental study," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 7-22, January. [Downloadable!] (restricted)
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(explanations, 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.)

  1. Burtraw, Dallas & Goeree, Jacob & Holt, Charles A. & Myers, Erica & Palmer, Karen & Shobe, William, 2008. "Collusion in Auctions for Emission Permits: An Experimental Analysis," Discussion Papers dp-08-36, Resources For the Future. [Downloadable!]
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