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Creating competition out of thin air: Market thickening and right-to-choose auctions

  • Kfir Eliaz

We study a procedure for selling multiple heterogenous goods, which is commonly used in practice but rarely studied in the literature. The novel feature of this procedure is that instead of selling the goods themselves, the seller offers buyers the right to choose among the available goods. Thus, buyers who are after completely different goods are forced to compete for the same good, the ‘right to choose’. Competition can be further enhanced by restricting the number of rights that are sold. This is shown both theoretically and experimentally. Our main experimental finding is that by auctioning ‘rights-to-choose’ rather than the goods themselves, the seller induces an aggressive bidding behaviour that generates more revenue than the theoretical optimal mechanism.

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Paper provided by UCLA Department of Economics in its series Theory workshop papers with number 658612000000000047.

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Date of creation: 30 Oct 2003
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Handle: RePEc:cla:uclatw:658612000000000047
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  1. Ashenfelter, Orley & Genesove, David, 1992. "Testing for Price Anomalies in Real-Estate Auctions," American Economic Review, American Economic Association, vol. 82(2), pages 501-05, May.
  2. Paul Klemperer, 1999. "Auction Theory: A Guide to the Literature," Economics Series Working Papers 1999-W12, University of Oxford, Department of Economics.
  3. Flavio Menezes & Paulo Klinger Monteiro, 1996. "Simultaneous Pooled Auctions," Microeconomics 9611001, EconWPA.
  4. David Lucking-Reiley & John A. List, 2000. "Demand Reduction in Multiunit Auctions: Evidence from a Sportscard Field Experiment," American Economic Review, American Economic Association, vol. 90(4), pages 961-972, September.
  5. Noussair, Charles, 1995. "Equilibria in a Multi-object Uniform Price Sealed Bid Auction with Multi-unit Demands," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 5(2), pages 337-51, March.
  6. Goeree, Jacob K. & Offerman, Theo, 2003. "Winner's curse without overbidding," European Economic Review, Elsevier, vol. 47(4), pages 625-644, August.
  7. Gale Ian L. & Hausch Donald B., 1994. "Bottom-Fishing and Declining Prices in Sequential Auctions," Games and Economic Behavior, Elsevier, vol. 7(3), pages 318-331, November.
  8. Gale, I. & Hausch, D., 1992. "Bottom-Fishing and Declining Prices in Sequential Auctions," Working papers 9215, Wisconsin Madison - Social Systems.
  9. Kagel, John H & Levin, Dan, 2001. "Behavior in Multi-unit Demand Auctions: Experiments with Uniform Price and Dynamic Vickrey Auctions," Econometrica, Econometric Society, vol. 69(2), pages 413-54, March.
  10. Roberto Burguet, 2005. "The condominium problem; auctions for substitutes," Review of Economic Design, Springer;Society for Economic Design, vol. 9(2), pages 73-90, 04.
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