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Competition and Cooperation in Divisible Good Auctions: An Experimental Examination

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  • Orly Sade

    (Jerusalem School of Business, Hebrew University of Jerusalem)

  • Charles Schnitzlein

    (College of Business, University of Central Florida)

  • Jaime F. Zender

    (Leeds School of Business, University of Colorado at Boulder)

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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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    Bibliographic Info

    Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2004.15.

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    Date of creation: Jan 2004
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    Handle: RePEc:fem:femwpa:2004.15

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    Keywords: Divisible good; Auctions; Experimental economics;

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    1. Paul Klemperer, 2000. "What Really Matters in Auction Design," Economics Series Working Papers 2000-W26, University of Oxford, Department of Economics.
    2. Lawrence M. Ausubel & Peter Cramton, 1995. "Demand Reduction and Inefficiency in Multi-Unit Auctions," Papers of Peter Cramton 98wpdr, University of Maryland, Department of Economics - Peter Cramton, revised 22 Jul 2002.
    3. Keloharju, Matti & Nyborg, Kjell G. & Rydqvist, Kristian, 2004. "Strategic Behavior and Underpricing in Uniform Price Auctions: Evidence from Finnish Treasury Auctions," University of California at Los Angeles, Anderson Graduate School of Management, Anderson Graduate School of Management, UCLA qt6v17p79w, Anderson Graduate School of Management, UCLA.
    4. 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.
    5. Robert Alan Feldman & Vincent Reinhart, 1995. "Flexible Estimation of Demand Schedules and Revenue Under Different Auction Formats," IMF Working Papers 95/116, International Monetary Fund.
    6. Gautam Goswami & Thomas Noe & Michael Rebello, 1995. "Collusion in uniform-price auctions: experimental evidence and implications for Treasury auctions," Working Paper, Federal Reserve Bank of Atlanta 95-5, Federal Reserve Bank of Atlanta.
    7. Umlauf, Steven R., 1993. "An empirical study of the Mexican Treasury bill auction," Journal of Financial Economics, Elsevier, Elsevier, vol. 33(3), pages 313-340, June.
    8. Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, Elsevier, vol. 42(1), pages 1-12, June.
    9. Wilson, Robert, 1979. "Auctions of Shares," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(4), pages 675-89, November.
    10. 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).
    11. 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.
    12. Smith, Vernon L, 1985. "Experimental Economics: Reply," American Economic Review, American Economic Association, American Economic Association, vol. 75(1), pages 264-72, March.
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