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Combination Bidding in Multi-Unit Auctions

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Author Info
Cantillon, Estelle
Pesendorfer, Martin

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Abstract

This paper considers the problem of identification and estimation in the first-price multi-unit auction. It is motivated by the auctions of bus routes held in London where bidders submit bids on combinations of routes as well as on individual routes. We show that submitting a combination bid lower than the sum of the bids on the constituent routes does not require cost synergies and can instead serve as a tool to leverage market power across the different routes. As a result, the welfare consequences of allowing combination bidding in the first price auction are ambiguous, and depend on the importance of the cost synergies. We provide conditions for non-parametric identification of the multidimensional private information in the multi-unit first price auction and derive partial identification results when they are not satisfied. We propose an estimation method consisting of two stages: In the first stage, the distribution of bids is estimated parametrically. In the second stage, the (set of) costs and distribution(s) of costs consistent with the observed behavior are inferred based on the first order conditions for optimally chosen bids. We apply the estimation method to data from the London bus routes market. We quantify the magnitude of cost synergies and assess possible efficiency losses arising in this market.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6083.

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Date of creation: Feb 2007
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Handle: RePEc:cpr:ceprdp:6083

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Related research
Keywords: combinatorial auction; empirical; multi-unit auction; procurement;

Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions

This paper has been announced in the following NEP Reports:

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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  32. Donald, Stephen G & Paarsch, Harry J, 1993. "Piecewise Pseudo-maximum Likelihood Estimation in Empirical Models of Auctions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 121-48, February. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(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. Lawrence M. Ausubel & Paul Milgrom, 2002. "Ascending Auctions with Package Bidding," Working Papers 02004, Stanford University, Department of Economics. [Downloadable!]
    Other versions:
  2. Susan Athey & Philip A. Haile, 2006. "Empirical Models of Auctions," Levine's Bibliography 122247000000001045, UCLA Department of Economics. [Downloadable!]
    Other versions:
  3. Patrick Bajari & Jeremy T. Fox, 2005. "Measuring the Efficiency of an FCC Spectrum Auction," NBER Working Papers 11671, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Lawrence M. Ausubel & Paul Milgrom, 2005. "Ascending Proxy Auctions," Levine's Bibliography 122247000000000785, UCLA Department of Economics. [Downloadable!]
  5. Robert Marshall & Matthew Raiff & Jean-Francois Richard & Steven Schulenberg, 2006. "The Impact of Delivery Synergies on Bidding in the Georgia School Milk Market," Topics in Economic Analysis & Policy, Berkeley Electronic Press, vol. 6(1), pages 1327-1327. [Downloadable!] (restricted)
  6. Patrick Bajari & Stephanie Houghton & Steve Tadelis, 2006. "Bidding for Incomplete Contracts: An Empirical Analysis," NBER Working Papers 12051, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Miguel Amaral & Stéphane Saussier & Anne Yvrande-Billon, 2006. "Does Competition for the Field Improve Cost Efficiency? Evidence from the London Bus Tendering Model," Working Papers 2006-14, Center for Network Industries and Infrastructure (CNI). [Downloadable!]
  8. Chow, YuenLeng & Yavas, Abdullah, 2008. "Auctions with Positive Synergies: Experimental Evidence," MPRA Paper 12669, University Library of Munich, Germany. [Downloadable!]
  9. Patrick Bajari & Jeremy T. Fox, 2004. "Should Governments Auction Nationwide Spectrum Licenses? Estimating Bidder Valuations," Working Papers 04-15, NET Institute, revised Sep 2004. [Downloadable!]
  10. Patrick Bajari & Stephanie Houghton & Steven Tadelis, 2004. "Bidding for Incompete Contracts," Working Papers 2004.141, Fondazione Eni Enrico Mattei. [Downloadable!]
  11. Paul Milgrom, 2006. "Package Auctions and Package Exchanges: the 2004 Fisher-Schultz Lecture," Levine's Bibliography 321307000000000131, UCLA Department of Economics. [Downloadable!]
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