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Competition and cooperation in divisible good auctions: An experimental examination

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  • Orly Sade
  • Charles Schnitzlein
  • Jaime Zender
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    Abstract

    An experimental approach is used to examine the performance of three different multi-unit auction designs: discriminatory, uniform-price with fixed supply, and uniform-price with endogenous supply. We find that the strategies of the individual bidders and the aggregate demand curves are inconsistent with theoretically identified equilibrium strategies. The discriminatory auction is found to be more susceptible to collusion than are the uniform-price auctions, and so contrary to theoretical predictions and previous experimental results the discriminatory auction provides the lowest average revenue. Consistent with theoretical predictions, bidder demands are more elastic with reducible supply or discriminatory pricing than in the uniform-price auction with fixed supply. Despite a lack of a priori differences across bidders, the discriminatory auction results in significantly more symmetric allocations.

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    File URL: http://karlan.yale.edu/fieldexperiments/papers/00105.pdf
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    Bibliographic Info

    Paper provided by The Field Experiments Website in its series Artefactual Field Experiments with number 00105.

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    Date of creation: 2006
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    Handle: RePEc:feb:artefa:00105

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    1. Nyborg, Kjell G. & Strebulaev, Ilya A. & Bindseil, Ulrich, 2002. "Bidding and performance in repo auctions: evidence from ECB open market operations," Working Paper Series, European Central Bank 0157, European Central Bank.
    2. Goswami, Gautam & Noe, Thomas H & Rebello, Michael J, 1996. "Collusion in Uniform-Price Auctions: Experimental Evidence and Implications for Treasury Auctions," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 9(3), pages 757-85.
    3. Back, Kerry & Zender, Jaime F., 2001. "Auctions of divisible goods with endogenous supply," Economics Letters, Elsevier, Elsevier, vol. 73(1), pages 29-34, October.
    4. Jegadeesh, Narasimhan, 1993. " Treasury Auction Bids and the Salomon Squeeze," Journal of Finance, American Finance Association, American Finance Association, vol. 48(4), pages 1403-19, September.
    5. Matti Keloharju & Kjell G. Nyborg & Kristian Rydqvist, 2005. "Strategic Behavior and Underpricing in Uniform Price Auctions: Evidence from Finnish Treasury Auctions," Journal of Finance, American Finance Association, American Finance Association, vol. 60(4), pages 1865-1902, 08.
    6. Back, Kerry & Zender, Jaime F, 1993. "Auctions of Divisible Goods: On the Rationale for the Treasury Experiment," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 6(4), pages 733-64.
    7. Klemperer, Paul, 2000. "What Really Matters in Auction Design," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2581, C.E.P.R. Discussion Papers.
    8. Leonardo Bartolini & Carlo Cottarelli, 1997. "Designing effective auctions for treasury securities," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 3(Jul).
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    Cited by:
    1. Martin Sefton & Ping Zhang, 2009. "Divisible-good uniform price auctions: the role of allocation rules and communication among bidders," Discussion Papers, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham 2009-21, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    2. Ping Zhang, 2009. "Characterization of Pure Strategy Equilibria in Uniform Price IPO Auctions," Discussion Papers, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham 2009-05, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    3. Rosen, Christiane & Madlener, Reinhard, 2013. "An Experimental Analysis of Single vs. Multiple Bids in Auctions of Divisible Goods," FCN Working Papers, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN) 8/2013, E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN), revised Nov 2013.

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