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Creating competition out of thin air: An experimental study of right-to-choose auctions

  • Eliaz, Kfir
  • Offerman, Theo
  • Schotter, Andrew

This paper presents an experimental study of a mechanism that is commonly used to sell multiple heterogeneous goods. The novel feature of this procedure is that instead of selling each good in a separate auction, the seller executes a single auction in which buyers, who may be interested in completely different goods, compete for the right to choose a good. We provide experimental evidence that a Right-to-Choose (RTC) auction can generate more revenue than the theoretically optimal auction. Moreover, in contrast to the "optimal" auction, the RTC auction is approximately efficient in the sense that the surplus it generates is close to the maximal one. Furthermore, a seller who would like to retain some of his goods can generate more revenue with a restricted RTC auction in which not all rights-to-choose are sold, than with the theoretically optimal auction.

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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 62 (2008)
Issue (Month): 2 (March)
Pages: 383-416

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Handle: RePEc:eee:gamebe:v:62:y:2008:i:2:p:383-416
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622836

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  1. Ashenfelter, Orley & Genesove, David, 1992. "Testing for Price Anomalies in Real-Estate Auctions," American Economic Review, American Economic Association, vol. 82(2), pages 501-05, May.
  2. Roberto Burguet, 2005. "The condominium problem; auctions for substitutes," Review of Economic Design, Springer, vol. 9(2), pages 73-90, 04.
  3. Tibor Neugebauer & Reinhard Selten, 2002. "Individual Behavior of First-Price Sealed-Bid Auctions: The Importance of Information Feedback in Experimental Markets," Bonn Econ Discussion Papers bgse3_2003, University of Bonn, Germany.
  4. Menezes, F.M. & Monteiro, P.K., 1996. "Simultaneous Ooled Auctions," Papers 302, Australian National University - Department of Economics.
  5. J. Riley & E. Maskin, 1981. "Optimal Auctions with Risk Averse Buyers," Working papers 311, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Goeree, Jacob K. & Offerman, Theo, 2003. "Winner's curse without overbidding," European Economic Review, Elsevier, vol. 47(4), pages 625-644, August.
  7. Olivier Armantier & Nicolas Treich, 2006. "Overbidding in Independant Private-Values Auctions and Misperception of Probabilities," CIRANO Working Papers 2006s-15, CIRANO.
  8. John G. Riley & William Samuelson, 1979. "Optimal Auctions," UCLA Economics Working Papers 152, UCLA Department of Economics.
  9. Jacob K. Goeree & Charles R. Plott & John Wooders, 2004. "Bidders' Choice Auctions: Raising Revenues Through the Right to Choose," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 504-515, 04/05.
  10. Isaac, R. Mark & Walker, James M., 1985. "Information and conspiracy in sealed bid auctions," Journal of Economic Behavior & Organization, Elsevier, vol. 6(2), pages 139-159, June.
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