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Impacts of a Capacity Advantaged Bidder in Sequential Common Value Auctions: Evidence from the Laboratory

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  • Kalyn T. Coatney
  • Dale J. Menkhaus
  • Sherrill Shaffer

Abstract

As bidders reach capacity throughout a sequential common value auction, theory predicts they will account for the option value of purchasing later units against fewer rivals. Mergers, joint purchasing arrangements, or a common bidding agent may result in a capacity advantaged bidder. Using laboratory experiments, we find that bidders account for the option value of winning later units when capacity constraints are significantly binding. Similar to the predictions of value advantaged bidder theory, the capacity advantaged bidder bids more aggressively, purchasing more units at lower prices than disadvantaged rivals. However, the creation of a capacity advantaged bidder transfers surplus to all bidders primarily due to the reduction in the number of bidders.

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Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2014-17.

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Length: 38 pages
Date of creation: Feb 2014
Date of revision:
Handle: RePEc:een:camaaa:2014-17

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  1. repec:feb:artefa:0097 is not listed on IDEAS
  2. Rose, Susan L. & Levin, Dan, 2008. "An experimental investigation of the explosive effect in almost common value auctions," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 67(3-4), pages 927-946, September.
  3. Kalyn T. Coatney & Sherrill L. Shaffer & Dale J. Menkhaus, 2011. "Auction Prices, Market Share, and a Common Agent," CAMA Working Papers, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University 2011-24, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Coatney, Kalyn T. & Tack, Jesse B., 2011. "Estimating the Value of Antitrust Investigations: A Case Study in Agriculture," 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania, Agricultural and Applied Economics Association 103548, Agricultural and Applied Economics Association.
  5. Paul Klemperer, 1997. "Auctions with Almost Common Values: The Wallet Game and its Applications," Economics Series Working Papers, University of Oxford, Department of Economics 1998-W03, University of Oxford, Department of Economics.
  6. Maria L. Loureiro & Wendy J. Umberger & Susan Hine, 2003. "Testing the initial endowment effect in experimental auctions," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 10(5), pages 271-275, April.
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