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Demand Reduction and Preemptive Bidding in Multi-Unit License Auctions

Listed author(s):
  • Jacob Goeree

    ()

    (California Institute of Technology, USA, and Universiteit van Amsterdam)

  • Theo Offerman

    ()

    (Faculty of Economics and Econometrics, Universiteit van Amsterdam)

  • Randolph Sloof

    ()

    (Faculty of Economics and Econometrics, Universiteit van Amsterdam)

This discussion paper resulted in a publication in Experimental Economics 2013, 16(1), 52-87. 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 preemptive bidding by incumbent bidders in a coordinated attempt to exclude entrants from the market. We consider an environment where both demand reduction and preemptive 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 Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 04-122/1.

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Date of creation: 16 Nov 2004
Handle: RePEc:tin:wpaper:20040122
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