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Bidding for Clubs

Author

Listed:
  • Benoit Julien

    () (UNSW, Australia)

  • John Kennes

    () (Department of Economics and Business, Aarhus University)

  • Moritz Ritter

    () (Temple University, USA)

Abstract

This paper studies the mechanism by which club memberships, activities, and rules are chosen in a decentralized economy. For this purpose, we develop a model of competing auctions for club goods. This is a dynamic game where each seller first chooses an auction format; next, each buyer chooses a seller; and, finally, each buyer bids for membership. If sellers are restricted to simple auctions without reserve prices, then the decentralized equilibrium is generally inefficient across a multitude of important margins. However, if the sellers can compete by a broader class of auctions - and where the anonymity of buyer strategies implies coordination frictions - the sellers generally choose negative reserve prices and the equilibrium is constrained efficient. The advertisement of a negative reserve price is equivalent to the advertisement of an amenity that augments the value of the club good. The function of this amenity is to ensure a critical mass of bidders at the seller’s location. For example, if a firm is attempting to assemble a team to utilize a club good at its location, it will also choose to advertise commitment to an additional amenity, such as a set of free health club memberships, as a means to attract a critical mass of applicants.

Suggested Citation

  • Benoit Julien & John Kennes & Moritz Ritter, 2013. "Bidding for Clubs," Economics Working Papers 2013-19, Department of Economics and Business Economics, Aarhus University.
  • Handle: RePEc:aah:aarhec:2013-19
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    File URL: ftp://ftp.econ.au.dk/afn/wp/13/wp13_19.pdf
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    References listed on IDEAS

    as
    1. Mortensen, Dale T., 2009. "Island matching," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2336-2353, November.
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    12. Benoit Julien & John Kennes & Ian King, 2000. "Bidding for Labor," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 619-649, October.
    13. Gianni De Fraja & Jozsef Sakovics, 2001. "Walras Retrouve: Decentralized Trading Mechanisms and the Competitive Price," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 842-863, August.
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    Cited by:

    1. John Kennes & Daniel le Maire, 2013. "Competing Auctions of Skills," CAM Working Papers 2014_01, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.

    More about this item

    Keywords

    clubs; coordination frictions; Mortensen tax; Hosios rule; competing auctions;

    JEL classification:

    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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