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Efficiency and synergy in a multi-unit auction with and without package bidding: An experimental study

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  • Chernomaz, Kirill
  • Levin, Dan

Abstract

We study, theoretically and experimentally, sealed-bid first-price auctions with and without package bidding. In the model, a global bidder bids for multiple items and can benefit from synergies, while local bidders bid for a single item. In the equilibrium, package bidding improves (hurts) efficiency at high (low) levels of synergies. Package bidding introduces free-riding incentives for local bidders resulting in asymmetric bidding that reduces efficiency when synergies are low but increases it with high synergies. The free ridding incentive lowers bidding of local and global bidders reducing revenues at all levels of synergies. We conduct experiments varying auction rules and the degree of synergies. Observed efficiencies are qualitatively consistent with the theory. The effect of package bidding on revenues is negative when global bidders are not allowed to bid on single items (a feature of the equilibrium) and positive when the restriction is relaxed and synergies are high.

Suggested Citation

  • Chernomaz, Kirill & Levin, Dan, 2012. "Efficiency and synergy in a multi-unit auction with and without package bidding: An experimental study," Games and Economic Behavior, Elsevier, vol. 76(2), pages 611-635.
  • Handle: RePEc:eee:gamebe:v:76:y:2012:i:2:p:611-635
    DOI: 10.1016/j.geb.2012.07.008
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    More about this item

    Keywords

    Combinatorial auctions; Package bidding; Free-riding; Asymmetric auctions; Independent private value; First-price auctions; Experimental economics;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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