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Epic Fail: How Below-Bid Pricing Backfires in Multiunit Auctions

Author

Listed:
  • Sanna Laksá

    (University of Liverpool)

  • Daniel Marszalec

    (Faculty of Economics, The University of Tokyo)

  • Alexander Teytelboym

    (Department of Economics, St Catherine’s College, and the Institute for New Economic Thinking at the Oxford Martin School, University of Oxford)

Abstract

Auctions with below-bid pricing (e.g., uniform-price, ascending, and Vickrey auctions)have remarkable theoretical properties, but practitioners are skeptical about their imple-mentation. We present a model of collusion and predation in multiunit auctions thatexplains this gap between theory and practice. To sustain collusion, bidders submitcrank-handle bid-schedules. Our model predicts that in auctions with below-bid pricing (i) collu-sion is more sustainable, especially when bidders have similar valuations, and (ii) bidderscan more easily exploit value advantage to predatory effect. Evidence from uniform-price,ascending, and pay-as-bid auctions of fishing quota in the Faroe Islands confirms ourpredictions.

Suggested Citation

  • Sanna Laksá & Daniel Marszalec & Alexander Teytelboym, 2018. "Epic Fail: How Below-Bid Pricing Backfires in Multiunit Auctions," CIRJE F-Series CIRJE-F-1096, CIRJE, Faculty of Economics, University of Tokyo.
  • Handle: RePEc:tky:fseres:2018cf1096
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    File URL: http://www.cirje.e.u-tokyo.ac.jp/research/dp/2018/2018cf1096.pdf
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    References listed on IDEAS

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    Cited by:

    1. Alexander Teytelboym, 2019. "Natural capital market design," Oxford Review of Economic Policy, Oxford University Press, vol. 35(1), pages 138-161.

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