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Demand Reduction and Pre-emptive Bidding in Multi-Unit License Auctions

  • Goeree, Jacob K.
  • Offerman, Theo
  • Sloof, Randolph

Multi-unit ascending auctions allow for equilibria in which bidders strategically reduce their demand and split the market at low prices. At the same time, they allow for pre-emptive bidding by incumbent bidders in a coordinated attempt to exclude entrants from the market. We consider an environment where both demand reduction and pre-emptive bidding are supported as equilibrium phenomena of the ascending auction. In a series of experiments, we compare its performance to that of the discriminatory auction. Strategic demand reduction is quite prevalent in the ascending auction even when entry by the newcomer imposes a (large) negative externality on incumbents. As a result, the ascending auction performs worse than the discriminatory auction both in terms of revenue and efficiency, while the two auction formats offer similar chances for newcomers to enter the market.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4899.

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Date of creation: Feb 2005
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Handle: RePEc:cpr:ceprdp:4899
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