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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.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 12669.

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Date of creation: Dec 2008
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Handle: RePEc:pra:mprapa:12669

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Keywords: Auction; Positive Synergies; Increased Competition; Package Bids;

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  1. Estelle Cantillon & Martin Pesendorfer, . "Combination Bidding in Multi-unit Auctions," ULB Institutional Repository 2013/151705, ULB -- Universite Libre de Bruxelles.
  2. 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, Springer, vol. 8(2), pages 137-49, March.
  3. Alsemgeest, Paul & Noussair, Charles & Olson, Mark, 1998. "Experimental Comparisons of Auctions under Single- and Multi-Unit Demand," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 36(1), pages 87-97, January.
  4. Bykowsky, Mark M & Cull, Robert J & Ledyard, John O, 2000. "Mutually Destructive Bidding: The FCC Auction Design Problem," Journal of Regulatory Economics, Springer, Springer, vol. 17(3), pages 205-28, May.
  5. Chakraborty, Indranil, 2006. "Bundle and separate sales in auctions with entry," Games and Economic Behavior, Elsevier, Elsevier, vol. 54(1), pages 31-46, January.
  6. 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.
  7. Indranil Chakraborty, 1999. "Bundling decisions for selling multiple objects," Economic Theory, Springer, Springer, vol. 13(3), pages 723-733.
  8. repec:ebl:ecbull:v:4:y:2004:i:8:p:1-14 is not listed on IDEAS
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Cited by:
  1. Hikmet Gunay & Xin Meng, 2012. "Exposure Problem in Multi-unit Auctions," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0848, Institute of Social and Economic Research, Osaka University.

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