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Demand Reduction and Preemptive Bidding in Multi-Unit License Auctions

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  • Jacob Goeree

    ()
    (California Institute of Technology, USA, and Universiteit van Amsterdam)

  • Theo Offerman

    ()
    (Faculty of Economics and Econometrics, Universiteit van Amsterdam)

  • Randolph Sloof

    ()
    (Faculty of Economics and Econometrics, Universiteit van Amsterdam)

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 preemptive bidding by incumbent bidders in a coordinated attempt to exclude entrants from the market. We consider an environment where both demand reduction and preemptive 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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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 04-122/1.

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Date of creation: 16 Nov 2004
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Handle: RePEc:dgr:uvatin:20040122

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Web page: http://www.tinbergen.nl

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Keywords: Multi-license auctions; demand reduction; external effects; preemption;

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References

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Citations

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Cited by:
  1. Goeree, Jacob K. & Offerman, Theo & Schram, Arthur, 2006. "Using first-price auctions to sell heterogeneous licenses," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 24(3), pages 555-581, May.
  2. Burtraw, Dallas & Goeree, Jacob & Holt, Charles & Myers, Erica & Palmer, Karen & Shobe, William, 2010. "Price Discovery in Emissions Permit Auctions," Discussion Papers, Resources For the Future dp-10-32, Resources For the Future.
  3. Todd R. Kaplan & Shmuel Zamir, 2014. "Advances in Auctions," Discussion Paper Series, The Center for the Study of Rationality, Hebrew University, Jerusalem dp662, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  4. Anthony M. Kwasnica & Katerina Sherstyuk, 2013. "Multi-Unit Auctions," Working Papers, University of Hawaii at Manoa, Department of Economics 201301, University of Hawaii at Manoa, Department of Economics.
  5. Regina Betz & Ben Greiner & Sascha Schweitzer & Stefan Seifert, 2014. "Auction Format and Auction Sequence in Multi-Item Multi-Unit Auctions - An experimental study," Discussion Papers, School of Economics, The University of New South Wales 2014-31, School of Economics, The University of New South Wales.
  6. He, Haoran & Chen, Yefeng & Last Name, First Name, 2014. "Auction Mechanisms for Allocating Subsidies for Carbon Emissions Reduction: An Experimental Investigation," Discussion Papers, Resources For the Future dp-14-06-efd, Resources For the Future.
  7. Hu, Youxin & Kagel, John & Xu, Xiaoshu & Ye, Lixin, 2012. "Theoretical and Experimental Analysis of Auctions with Negative Externalities," MPRA Paper 47060, University Library of Munich, Germany.
  8. Pagnozzi, Marco & Saral, Krista Jabs, 2013. "Multi-Object Auctions with Resale: An Experimental Analysis," MPRA Paper 43665, University Library of Munich, Germany.
  9. Dallas Burtraw & Jacob Goeree & Charles A. Holt & Erica Myers & Karen Palmer & William Shobe, 2009. "Collusion in auctions for emission permits: An experimental analysis," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 28(4), pages 672-691.

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