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Horizontal Product Differentiation in Auctions and Multilateral Negotiations

  • Charles J. Thomas

    ()

    (Department of Economics, Clemson University)

  • Bart J. Wilson

    ()

    (Economic Science Institute, Chapman University)

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.

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File URL: http://www.chapman.edu/ESI/wp/Wilson_HorizontalDiff.pdf
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Paper provided by Chapman University, Economic Science Institute in its series Working Papers with number 08-03.

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Length: 27 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:chu:wpaper:08-03
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  1. Yeon-Koo Che, 1993. "Design Competition through Multidimensional Auctions," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 668-680, Winter.
  2. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Keith Waehrer & Martin Perry, 2002. "The Effects of Mergers in Open Auction Markets," Departmental Working Papers 200203, Rutgers University, Department of Economics.
  4. 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.
  5. Fudenberg, Drew & Tirole, Jean, 1983. "Sequential Bargaining with Incomplete Information," Review of Economic Studies, Wiley Blackwell, vol. 50(2), pages 221-47, April.
  6. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June.
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