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The Winner's Curse and the Failure of the Law of Demand

Author

Listed:
  • Bulow, Jeremy I.
  • Klemperer, Paul

Abstract

We usually assume increases in supply, allocation by rationing, and exclusion of potential buyers will never raise prices. But all of these activities raise the expected price in an important set of cases when common-value assets are sold. Furthermore, when we make the assumptions needed to rule out these ‘anomalies’ when buyers are symmetric, small asymmetries among buyers necessarily cause the anomalies to reappear.

Suggested Citation

  • Bulow, Jeremy I. & Klemperer, Paul, 1997. "The Winner's Curse and the Failure of the Law of Demand," CEPR Discussion Papers 1754, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1754
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    Citations

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    Cited by:

    1. de Frutos, Maria-Angeles & Pechlivanos, Lambros, 2006. "Second-price common-value auctions under multidimensional uncertainty," Games and Economic Behavior, Elsevier, vol. 55(1), pages 43-71, April.
    2. Klemperer, Paul, 1998. "Auctions with almost common values: The 'Wallet Game' and its applications," European Economic Review, Elsevier, vol. 42(3-5), pages 757-769, May.
    3. Matthew Shum, 1998. "The Econometrics Of English Auctions," Working Papers mshum-98-02, University of Toronto, Department of Economics.

    More about this item

    Keywords

    Airwaves Auction; Auction Theory; Common Value; Initial Public Offering; IPOs; PCS Auction; Spectrum Auction; Winner's Curse;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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