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Synergies and Price Trends in Sequential Auctions

  • Menezes, Flavio Marques
  • Monteiro, Paulo Klinger

In this paper we consider sequential second-price auctions where an individual's value for a bundle of objects is either greater than the sum of the values for the objects separately (positive synergy) or less than the sum (negative synergy). We show that the existence of positive synergies implies declining expected prices. When synergies are negative, expected prices are increasing. There are several corollaries. First, the seller is indifferent between selling the objects simultaneously as a bundle or sequentially when synergies are positive. Second, when synergies are negative, the expected revenue generated by the simultaneous auction can be larger or smaller than the expected revenue generated by the sequential auction. In addition, in the presence of positive synergies, an option to buy the additional object at the price of the first object is never exercised in the symmetric equilibrium and the seller's revenue is unchanged. Under negative synergies, in contrast, if there is an equilibrium where the option is never exercised, then equilibrium prices may either increase or decrease and, therefore, the net effect on the seller's revenue of the introduction of an option is ambiguous. Finally, we examine a special case with asymmetric players who have distinct synergies. In this example, even if one player has positive synergies and the other has negative synergies, it is still possible for expected prices to decline. Copyright Springer-Verlag Berlin/Heidelberg 2003

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Paper provided by FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil) in its series Economics Working Papers (Ensaios Economicos da EPGE) with number 360.

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Date of creation: 01 Oct 1999
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Handle: RePEc:fgv:epgewp:360
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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. Vijay Krishna & Robert Rosenthal, 1995. "Simultaneous Auctions with Synergies," Game Theory and Information 9503004, EconWPA.
  3. Vanderporten, Bruce, 1992. "Timing of Bids at Pooled Real Estate Auctions," The Journal of Real Estate Finance and Economics, Springer, vol. 5(3), pages 255-67, September.
  4. Bernhardt, Dan & Scoones, David, 1994. "A Note on Sequential Auctions," American Economic Review, American Economic Association, vol. 84(3), pages 653-57, June.
  5. Fl. Menezes & P.K.Monteiro, 1994. "Sequential Asymmetric Auctions With Endogenous Participation," Microeconomics 9402001, EconWPA, revised 09 Jun 1994.
  6. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
  7. Gandal, Neil, 1997. "Sequential Auctions of Interdependent Objects: Israeli Cable Television Licenses," Journal of Industrial Economics, Wiley Blackwell, vol. 45(3), pages 227-44, September.
  8. Jones, C. & Menezes, F. & Vella, F., 1996. "Auctions Price Anomalies: Evidence from Wool Auctions in Australia," Papers 303, Australian National University - Department of Economics.
  9. Jeitschko, Thomas D. & Wolfstetter, Elmar, 1998. "Scale economies and the dynamics of recurring auctions," SFB 373 Discussion Papers 1998,62, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  10. Branco, Fernando, 1997. "Sequential auctions with synergies: An example," Economics Letters, Elsevier, vol. 54(2), pages 159-163, February.
  11. Black, Jane & De Meza, David, 1992. "Systematic Price Differences between Successive Auctions Are No Anomaly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 607-28, Winter.
  12. Vanderporten, Bruce, 1992. "Strategic behavior in pooled condominium auctions," Journal of Urban Economics, Elsevier, vol. 31(1), pages 123-137, January.
  13. McAfee R. Preston & Vincent Daniel, 1993. "The Declining Price Anomaly," Journal of Economic Theory, Elsevier, vol. 60(1), pages 191-212, June.
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