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Auctions with Endogenous Valuations, The Snowball Effect Revisited

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  • Kala Krishna

Abstract

In most of the literature on auctions the valuations of agents are exogenously specified. This assumption may be inappropriate in a number of cases where valuations are better derived endogenously. Endogenous valuations are appropriate when there are many units being auctioned and their value is determined in a secondary market which is imperfectly competitive. The model is thus appropriate for studying the sale of quota licenses and scarce resources used in production when product markets are imperfectly competitive. A series of examples are developed to show how these models work. Particular models are developed which cast light on a number of issues in applied micro-economics. These issues include the evolution of market structure, in particular, the "snowball effect", the effect an market structure of selling quota licenses, and the relationship between increasing returns to scale and the monopolization of markets. The models also provide another resolution of the "transponder puzzle".

Suggested Citation

  • Kala Krishna, 1990. "Auctions with Endogenous Valuations, The Snowball Effect Revisited," NBER Working Papers 3483, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3483
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    1. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
    2. Pitchik, Carolyn, 2009. "Budget-constrained sequential auctions with incomplete information," Games and Economic Behavior, Elsevier, vol. 66(2), pages 928-949, July.
    3. Eric S. Maskin & John G. Riley, 1981. "Multi-unit Auctions, Price Discrimination and Bundling," UCLA Economics Working Papers 201, UCLA Department of Economics.
    4. B. Douglas Bernheim & Michael D. Whinston, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, Oxford University Press, vol. 101(1), pages 1-31.
    5. repec:fth:harver:1484 is not listed on IDEAS
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    Cited by:

    1. Pitchik, Carolyn, 2009. "Budget-constrained sequential auctions with incomplete information," Games and Economic Behavior, Elsevier, vol. 66(2), pages 928-949, July.
    2. Robert C. Feenstra & Tracy Lewis & John McMillan, 1990. "Designing Policy To Open Trade," Economics and Politics, Wiley Blackwell, vol. 2(3), pages 223-240, November.
    3. Gebhardt, Georg & Wambach, Achim, 2008. "Auctions to implement the efficient market structure," International Journal of Industrial Organization, Elsevier, vol. 26(3), pages 846-859, May.
    4. Jeddy, Mohamed & Larue, Bruno, 2012. "Mergers, concurrent marketing mechanisms and the performance of sequential auctions," Working Papers 126945, Structure and Performance of Agriculture and Agri-products Industry (SPAA).
    5. Eerola, Essi & Maattanen, Niku, 2004. "Strategic alliances, joint investments, and market structure," International Journal of Industrial Organization, Elsevier, vol. 22(2), pages 241-251, February.
    6. Gale, Ian L. & Stegeman, Mark, 2001. "Sequential Auctions of Endogenously Valued Objects," Games and Economic Behavior, Elsevier, vol. 36(1), pages 74-103, July.
    7. Larue, Bruno & Gervais, Jean-Philippe & Pouliot, Sebastien, 2007. "Should tariff-rate quotas mimic quotas?: Implications for trade liberalization under a supply management policy," The North American Journal of Economics and Finance, Elsevier, vol. 18(3), pages 247-261, December.
    8. van Damme, Eric, 2002. "The European UMTS-auctions," European Economic Review, Elsevier, vol. 46(4-5), pages 846-858, May.
    9. repec:ebl:ecbull:v:30:y:2010:i:1:p:429-436 is not listed on IDEAS
    10. Mohamed Jeddy & Bruno Larue & Jean-philippe Gervais, 2010. "Allocations and Price Trends in Sequential Auctions under Complete Information with Symmetric Bidders," Economics Bulletin, AccessEcon, vol. 30(1), pages 429-436.
    11. Das Varma, Gopal, 2003. "Bidding for a process innovation under alternative modes of competition," International Journal of Industrial Organization, Elsevier, vol. 21(1), pages 15-37, January.

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