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Complements and Substitutes in Sequential Auctions: The Case of Water Auctions

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  • Donna, Javier
  • Espin-Sanchez, Jose
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    Abstract

    We use data on sequential water auctions to estimate demand when units are com- plements or substitutes. A sequential English auction model determines the estimating structural equations. When units are complements, one bidder wins all units by paying a high price for the first unit, thus deterring others from bidding on subsequent units. When units are substitutes, different bidders win the units with positive probability, paying prices similar in magnitude, even when the same bidder wins all units. We re- cover individual demand consistent with this stark pattern of outcomes and confirm it is not collusive, but consistent with non-cooperative behavior. Demand estimates are biased if one ignores these features.

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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 55079.

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    Date of creation: 17 Feb 2014
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    Handle: RePEc:pra:mprapa:55079

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    Related research

    Keywords: Auctions; Structural Demand Estimation; Market Structure; Competition; Collusion;

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    1. Andrés Aradillas‐López & Amit Gandhi & Daniel Quint, 2013. "Identification and Inference in Ascending Auctions With Correlated Private Values," Econometrica, Econometric Society, vol. 81(2), pages 489-534, 03.
    2. James J. Anton & Dennis A. Yao, 1987. "Second Sourcing and the Experience Curve: Price Competition in Defense Procurement," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 57-76, Spring.
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