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Scale Economies and the Dynamics of Recurring Auctions

Author

Listed:
  • Thomas D. Jeitschko

    () (Department of Economics, Michigan State University, East Lansing, MI 48824.)

  • Elmar Wolfstetter

    () (Institut f. Wirtschaftstheorie I, Humboldt-Universit‚ÄĚt zu Berlin, Spandauer Str. 1, 10178 Berlin, Germany.)

Abstract

We analyze the dynamics of a game of sequential bidding in the presence of stochastic scale effects, either economies or diseconomies of scale. We show that economies of scale give rise to declining expected equilibrium prices, whereas the converse is not generally true. Moreover, first- and second-price auctions are not always revenue equivalent. Economies of scale make second-price auctions more profitable for the seller, whereas revenue equivalence may be preserved in the case of diseconomies. Copyright 2002, Oxford University Press.

Suggested Citation

  • Thomas D. Jeitschko & Elmar Wolfstetter, 2002. "Scale Economies and the Dynamics of Recurring Auctions," Economic Inquiry, Western Economic Association International, vol. 40(3), pages 403-414, July.
  • Handle: RePEc:oup:ecinqu:v:40:y:2002:i:3:p:403-414
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    References listed on IDEAS

    as
    1. Bernhardt, Dan & Scoones, David, 1994. "A Note on Sequential Auctions," American Economic Review, American Economic Association, vol. 84(3), pages 653-657, June.
    2. von der Fehr, N.-H. M. & Riis, C., 1998. "Option Values in Sequential Markets," Memorandum 07/1998, Oslo University, Department of Economics.
    3. Engelbrecht-Wiggans, Richard, 1994. "Sequential auctions of stochastically equivalent objects," Economics Letters, Elsevier, vol. 44(1-2), pages 87-90.
    4. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
    5. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
    6. McAfee R. Preston & Vincent Daniel, 1993. "The Declining Price Anomaly," Journal of Economic Theory, Elsevier, vol. 60(1), pages 191-212, June.
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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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