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Bundling and the Reduction of the Winner's Curse

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  • Indranil Chakraborty

Abstract

The paper studies the effects of bundling on the bidding strategies and seller revenues in auctions when the bidders have common values for the objects. Bundling of objects before the auction reduces the problem of the winner's curse, and the bidders bid more aggressively. This does not mean that a bundled auction is always better for the seller's revenue. Indeed, there is another effect that makes the bundled auction preferable (from the seller's standpoint) if and only if the number of bidders is small. While this is the only effect present in an independent‐private‐values model, it does not vanish when bidders have pure common values for the objects. The paper concludes that a bundled auction is unambiguously better for the seller than separate auctions when the number of bidders is small.

Suggested Citation

  • Indranil Chakraborty, 2002. "Bundling and the Reduction of the Winner's Curse," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(4), pages 663-684, December.
    • Handle: RePEc:bla:jemstr:v:11:y:2002:i:4:p:663-684
    DOI: 10.1111/j.1430-9134.2002.00663.x
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    References listed on IDEAS

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    1. Peter Cramton, 1997. "The FCC Spectrum Auctions: An Early Assessment," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(3), pages 431-495, September.
    2. Palfrey, Thomas R, 1983. "Bundling Decisions by a Multiproduct Monopolist with Incomplete Information," Econometrica, Econometric Society, vol. 51(2), pages 463-483, March.
    3. 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.
    4. Vincent Daniel R., 1995. "Bidding Off the Wall: Why Reserve Prices May Be Kept Secret," Journal of Economic Theory, Elsevier, vol. 65(2), pages 575-584, April.
    5. Gresik, Thomas A., 1991. "Ex ante incentive efficient trading mechanisms without the private valuation restriction," Journal of Economic Theory, Elsevier, vol. 55(1), pages 41-63, October.
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    Cited by:

    1. Chakraborty, Indranil, 2006. "Bundle and separate sales in auctions with entry," Games and Economic Behavior, Elsevier, vol. 54(1), pages 31-46, January.
    2. Ramanathan Subramaniam & R. Venkatesh, 2009. "Optimal Bundling Strategies in Multiobject Auctions of Complements or Substitutes," Marketing Science, INFORMS, vol. 28(2), pages 264-273, 03-04.

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