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Horizontal Product Differentiation in Auctions and Multilateral Negotiations

Author

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  • Charles J. Thomas

    (Department of Economics, Clemson University)

  • Bart J. Wilson

    (Economic Science Institute, Chapman University)

Abstract

We experimentally compare first-price auctions and multilateral negotiations after introducing horizontal product differentiation into a standard procurement setting. The two institutions yield the buyer the same surplus, a difference from prior findings with homogeneous products that results from differentiation’s influence on the sellers’ pricing behavior. In particular, we find that introducing product differentiation intensifies price competition among the sellers in some treatments, and has no effect in others, which contrasts with the conventional wisdom that product differentiation softens competition.

Suggested Citation

  • Charles J. Thomas & Bart J. Wilson, 2008. "Horizontal Product Differentiation in Auctions and Multilateral Negotiations," Working Papers 08-03, Chapman University, Economic Science Institute.
    • Handle: RePEc:chu:wpaper:08-03
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    File URL: http://www.chapman.edu/ESI/wp/Wilson_HorizontalDiff.pdf
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    References listed on IDEAS

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    1. Waehrer, Keith & Perry, Martin K, 2003. "The Effects of Mergers in Open-Auction Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 287-304, Summer.
    2. Catherine D. Wolfram, 1998. "Strategic Bidding in a Multiunit Auction: An Empirical Analysis of Bids to Supply Electricity in England and Wales," RAND Journal of Economics, The RAND Corporation, vol. 29(4), pages 703-725, Winter.
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    6. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
    7. Charles J. Thomas & Bart J. Wilson, 2005. "Verifiable Offers and the Relationship Between Auctions and Multilateral Negotiations," Economic Journal, Royal Economic Society, vol. 115(506), pages 1016-1031, October.
    8. Charles J. Thomas & Bart J. Wilson, 2002. "A Comparison of Auctions and Multilateral Negotiations," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 140-155, Spring.
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    Cited by:

    1. Nicola Doni & Domenico Menicucci, 2014. "Information Revelation in Procurement Auctions with Two‐Sided Asymmetric Information," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(4), pages 952-968, December.
    2. Thomas, Charles J., 2018. "An alternating-offers model of multilateral negotiations," Journal of Economic Behavior & Organization, Elsevier, vol. 149(C), pages 269-293.
    3. Charles J. Thomas, 2014. "How the Nature of Product Differentiation Affects Procurement Competition," Southern Economic Journal, John Wiley & Sons, vol. 81(2), pages 323-344, October.
    4. Li, Sherry Xin & Dogan, Kutsal & Haruvy, Ernan, 2011. "Group identity in markets," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 104-115, January.
    5. Burns, Nathaniel A. & Deck, Cary A. & Thomas, Charles J., 2023. "Experimental analysis of impatience in bilateral and multilateral negotiations," Journal of Economic Psychology, Elsevier, vol. 95(C).
    6. Domenico Colucci & Nicola Doni & Vincenzo Valori, 2015. "Information policies in procurement auctions with heterogeneous suppliers," Journal of Economics, Springer, vol. 114(3), pages 211-238, April.
    7. Gregory E. Kersten & Tomasz Wachowicz & Margaret Kersten, 2016. "Competition, Transparency, and Reciprocity: A Comparative Study of Auctions and Negotiations," Group Decision and Negotiation, Springer, vol. 25(4), pages 693-722, July.
    8. Charles J. Thomas, 2019. "A New Perspective on Entry in Horizontal Merger Analysis," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(3), pages 459-491, November.

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