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The ratchet effect and bargaining power in a two-stage model of competitive bidding

Author

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  • Keith Waehrer

    (U.S. Bureau of Labor Statistics, 2 Massachusetts Ave., N.E.,Washington, DC 20212, USA)

Abstract

In the model presented, a buyer uses competitive bidding to facilitate her purchase of a good (the primary good of the exchange). Not included in the original purchase is the possible procurement of a good related to the original purchase: the supplementary good. The primary and supplementary goods are closely related; knowing a bidder's cost of producing the primary good implies that the buyer can infer the bidder's cost of producing the supplementary good. I show that a bidding mechanism for the primary good will fail to ensure an efficient allocation if the buyer learns the bid of the winner and the price of the supplementary good is determined through sequential bargaining.

Suggested Citation

  • Keith Waehrer, 1999. "The ratchet effect and bargaining power in a two-stage model of competitive bidding," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 13(1), pages 171-181.
    • Handle: RePEc:spr:joecth:v:13:y:1999:i:1:p:171-181
    Note: Received: August 22, 1996; revised version: June 23, 1997
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    Citations

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    Cited by:

    1. Haile,P.A., 1999. "Auctions with resale," Working papers 33, Wisconsin Madison - Social Systems.
    2. Ajay Kalra & Shibo Li, 2008. "Signaling Quality Through Specialization," Marketing Science, INFORMS, vol. 27(2), pages 168-184, 03-04.
    3. Bernard Lebrun, 2008. "First-Price, Second-Price, and English Auctions with Resale," Working Papers 2008_06, York University, Department of Economics.
    4. De Chiara, Alessandro, 2015. "Holding an Auction for the Wrong Project," MPRA Paper 72108, University Library of Munich, Germany, revised 21 Apr 2015.
    5. Ding, Wei & Jeitschko, Thomas D. & Wolfstetter, Elmar G., 2010. "Signal jamming in a sequential auction," Economics Letters, Elsevier, vol. 108(1), pages 58-61, July.

    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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