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Auctions with Positive Synergies: Experimental Evidence

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  • Chow, YuenLeng
  • Yavas, Abdullah

Abstract

In a standard auction, bidders bid more aggressively when the number of bidders increases. However, Krishna and Rosenthal (1996, Games and Economic Behavior) show that when bidders have multiple-unit demand that generates positive synergies, bidders bid less aggressively as the number of bidders increases. The first objective of this paper is to offer experimental evidence on this seemingly counter-intuitive theoretical prediction. Following the model of Krishna and Rosenthal, we design a simultaneous second-price sealed-bid auction for two objects with two types of bidders: single-object and multiple-object demand bidders. Our results show that bidders bid less aggressively with increased competition. The second objective is to investigate the effect of offering global bidders the option of bidding for both objects as a package as well as submitting individual bids for each object. Controlling for bidders' valuations, we find that offering this option to global bidders increases allocative efficiency and sellers' revenue.

Suggested Citation

  • Chow, YuenLeng & Yavas, Abdullah, 2008. "Auctions with Positive Synergies: Experimental Evidence," MPRA Paper 12669, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:12669
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    File URL: https://mpra.ub.uni-muenchen.de/12669/1/MPRA_paper_12669.pdf
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    References listed on IDEAS

    as
    1. Brannman, Lance & Klein, J Douglass & Weiss, Leonard W, 1987. "The Price Effects of Increased Competition in Auction Markets," The Review of Economics and Statistics, MIT Press, vol. 69(1), pages 24-32, February.
    2. Bykowsky, Mark M & Cull, Robert J & Ledyard, John O, 2000. "Mutually Destructive Bidding: The FCC Auction Design Problem," Journal of Regulatory Economics, Springer, vol. 17(3), pages 205-228, May.
    3. Colwell, Peter F & Yavas, Abdullah, 1994. "The Demand for Agricultural Land and Strategic Bidding in Auctions," The Journal of Real Estate Finance and Economics, Springer, vol. 8(2), pages 137-149, March.
    4. Alsemgeest, Paul & Noussair, Charles & Olson, Mark, 1998. "Experimental Comparisons of Auctions under Single- and Multi-Unit Demand," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 87-97, January.
    5. repec:ebl:ecbull:v:4:y:2004:i:8:p:1-14 is not listed on IDEAS
    6. Indranil Chakraborty, 2004. "Multi-Unit Auctions with Synergy," Economics Bulletin, AccessEcon, vol. 4(8), pages 1-14.
    7. Pesendorfer, Martin & Cantillon, Estelle, 2007. "Combination Bidding in Multi-Unit Auctions," CEPR Discussion Papers 6083, C.E.P.R. Discussion Papers.
    8. Indranil Chakraborty, 1999. "Bundling decisions for selling multiple objects," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 13(3), pages 723-733.
    9. Chakraborty, Indranil, 2006. "Bundle and separate sales in auctions with entry," Games and Economic Behavior, Elsevier, vol. 54(1), pages 31-46, January.
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    Cited by:

    1. Meng, Xin & Gunay, Hikmet, 2017. "Exposure problem in multi-unit auctions," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 165-187.

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    More about this item

    Keywords

    Auction; Positive Synergies; Increased Competition; Package Bids;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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