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Does auctioning of entry licenses affect consumer prices? : an experimental study

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Author Info
Offerman, T.
Potters, J. (Tilburg University, Center for Economic Research)

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Abstract

On an increasing scale auctions are used to allocate the licenses to operate on markets which are thought not suited for free entry. According to standard economic arguments, the license fees paid at the auction will not affect consumer prices since they constitute a sunk cost. This standard view is not uncontested though. In the present paper we experimentally investigate two arguments for a potential upward effect of auctioning of prices: the incorporation of entry fees in prices due to the use of mark-up pricing rules, and the tendency of auctions to select the more collusive firms. Our results indicate that auctioning increases the probability of high prices, and that this is mainly due to the use of mark-up pricing rules.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 53.

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Date of creation: 2000
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Handle: RePEc:dgr:kubcen:200053

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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. Crawford, Vincent & Broseta, Bruno, 1998. "What Price Coordination? The Efficiency-Enhancing Effect of Auctioning the Right to Play," American Economic Review, American Economic Association, vol. 88(1), pages 198-225, March. [Downloadable!] (restricted)
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  2. Cooper, Russell & Douglas V. DeJong & Robert Forsythe & Thomas W. Ross, 1993. "Forward Induction in the Battle-of-the-Sexes Games," American Economic Review, American Economic Association, vol. 83(5), pages 1303-16, December. [Downloadable!] (restricted)
  3. Margaret E. Slade, 1995. "Empirical Games: The Oligopoly Case," Canadian Journal of Economics, Canadian Economics Association, vol. 28(2), pages 368-402, May. [Downloadable!] (restricted)
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  4. De Bondt, Werner F. M. & Makhija, Anil K., 1988. "Throwing good money after bad? : Nuclear power plant investment decisions and the relevance of sunk costs," Journal of Economic Behavior & Organization, Elsevier, vol. 10(2), pages 173-199, September. [Downloadable!] (restricted)
  5. Offerman, Theo & Potters, Jan & Sonnemans, Joep, 2002. "Imitation and Belief Learning in an Oligopoly Experiment," Review of Economic Studies, Blackwell Publishing, vol. 69(4), pages 973-97, October.
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  6. Potters, Jan & van Winden, Frans, 2000. "Professionals and students in a lobbying experiment: Professional rules of conduct and subject surrogacy," Journal of Economic Behavior & Organization, Elsevier, vol. 43(4), pages 499-522, December. [Downloadable!] (restricted)
  7. Reinhard Selten & Michael Mitzkewitz & Gerald R. Uhlich, 1997. "Duopoly Strategies Programmed by Experienced Players," Econometrica, Econometric Society, vol. 65(3), pages 517-556, May.
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  8. Kreps, David M. & Milgrom, Paul & Roberts, John & Wilson, Robert, 1982. "Rational cooperation in the finitely repeated prisoners' dilemma," Journal of Economic Theory, Elsevier, vol. 27(2), pages 245-252, August. [Downloadable!] (restricted)
  9. Abbink, Klaus, and Abdolkarim Sadrieh, 1995. "RatImage - research Assistance Toolbox for Computer-Aided Human Behavior Experiments," Discussion Paper Serie B 325, University of Bonn, Germany.
  10. Dejong, Douglas V. & Forsythe, Robert & Uecker, Wilfred C., 1988. "A note on the use of businessmen as subjects in sealed offer markets," Journal of Economic Behavior & Organization, Elsevier, vol. 9(1), pages 87-100, January. [Downloadable!] (restricted)
  11. Van Huyck John B. & Battalio Raymond C. & Beil Richard O., 1993. "Asset Markets as an Equilibrium Selection Mechanism: Coordination Failure, Game Form Auctions, and Tacit Communication," Games and Economic Behavior, Elsevier, vol. 5(3), pages 485-504, July. [Downloadable!] (restricted)
  12. Kogut, Carl A. & Phillips, Owen R., 1994. "Individual decision making in an investment setting," Journal of Economic Behavior & Organization, Elsevier, vol. 25(3), pages 459-471, December. [Downloadable!] (restricted)
  13. Simon Hall & Mark Walsh & Anthony Yates, . "How do UK companies set prices?," Bank of England working papers 67, Bank of England. [Downloadable!]
  14. Nooteboom, B, 1985. "A Mark-up Model of Retail Margins," Applied Economics, Taylor and Francis Journals, vol. 17(4), pages 647-67, August.
  15. Kogut, Carl A., 1990. "Consumer search behavior and sunk costs," Journal of Economic Behavior & Organization, Elsevier, vol. 14(3), pages 381-392, December. [Downloadable!] (restricted)
  16. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-54, May. [Downloadable!] (restricted)
  17. Cachon, Gerard P & Camerer, Colin F, 1996. "Loss-Avoidance and Forward Induction in Experimental Coordination Games," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 165-94, February. [Downloadable!] (restricted)
  18. Blinder, Alan S, 1991. "Why Are Prices Sticky? Preliminary Results from an Interview Study," American Economic Review, American Economic Association, vol. 81(2), pages 89-96, May. [Downloadable!] (restricted)
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  19. Oliver E. Williamson, 1976. "Franchise Bidding for Natural Monopolies -- in General and with Respect to CATV," Bell Journal of Economics, The RAND Corporation, vol. 7(1), pages 73-104, Spring. [Downloadable!] (restricted)
  20. van Dalen, Jan & Thurik, Roy, 1998. "A model of pricing behavior: An econometric case study," Journal of Economic Behavior & Organization, Elsevier, vol. 36(2), pages 177-195, August. [Downloadable!] (restricted)
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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. Maarten C.W. Janssen & Vladimir A. Karamychev, 2005. "Auctions, Market Prices and the Risk Attitude Effect," Tinbergen Institute Discussion Papers 05-025/1, Tinbergen Institute. [Downloadable!]
  2. Maarten C.W. Janssen, 2003. "Auctions as Collusion Devices," Tinbergen Institute Discussion Papers 03-017/1, Tinbergen Institute. [Downloadable!]
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