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Impacts of a Capacity Advantaged Bidder in Sequential Common Value Auctions: Evidence from the Laboratory

Author

Listed:
  • Kalyn T. Coatney
  • Dale J. Menkhaus
  • Sherrill Shaffer

Abstract

As bidders reach capacity throughout a sequential common value auction, theory predicts they will account for the option value of purchasing later units against fewer rivals. Mergers, joint purchasing arrangements, or a common bidding agent may result in a capacity advantaged bidder. Using laboratory experiments, we find that bidders account for the option value of winning later units when capacity constraints are significantly binding. Similar to the predictions of value advantaged bidder theory, the capacity advantaged bidder bids more aggressively, purchasing more units at lower prices than disadvantaged rivals. However, the creation of a capacity advantaged bidder transfers surplus to all bidders primarily due to the reduction in the number of bidders.

Suggested Citation

  • Kalyn T. Coatney & Dale J. Menkhaus & Sherrill Shaffer, 2014. "Impacts of a Capacity Advantaged Bidder in Sequential Common Value Auctions: Evidence from the Laboratory," CAMA Working Papers 2014-17, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2014-17
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2014-02/17_2014_coatney_menkhaus_shaffer.pdf
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    References listed on IDEAS

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    1. Marco Casari & John C. Ham & John H. Kagel, 2007. "Selection Bias, Demographic Effects, and Ability Effects in Common Value Auction Experiments," American Economic Review, American Economic Association, vol. 97(4), pages 1278-1304, September.
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    6. repec:feb:artefa:0097 is not listed on IDEAS
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