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Joint Bidding in Common Value Auctions: Theory and Evidence

Author

Listed:
  • Vlad Mares

    (Olin School of Business)

  • Mikhael Shor

    (Owen Graduate School of Management, Vanderbilt University)

Abstract

We examine theoretically and experimentally two countervailing effects of collusion and symmetric mergers among bidders. On one hand, the pooling of information within bidding rings increases the precision of competing estimates. We demonstrate that, in average value auctions, this leads to more aggressive bidding. On the other hand, since collusion decreases the number of active bidders, competition is lessened, reducing the price paid at auction. We demonstrate that the reduction in competition dominates the informational effects, resulting in lower prices. We examine these hypothesized e®ects experimentally by conducting a series of auctions with constant informational content but a varying number of bidders among whom this information is distributed. The experimental results are consistent with our theoretical predictions for different value and auction mechanism specifications.

Suggested Citation

  • Vlad Mares & Mikhael Shor, 2003. "Joint Bidding in Common Value Auctions: Theory and Evidence," Game Theory and Information 0305001, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpga:0305001
    Note: Type of Document - Acrobat PDF; prepared on IBM PC - MikTeX; to print on PostScript; pages: 29 ; figures: included
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    References listed on IDEAS

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      • McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
    2. Dyer, Douglas & Kagel, John H & Levin, Dan, 1989. "A Comparison of Naive and Experienced Bidders in Common Value Offer Auctions: A Laboratory Analysis," Economic Journal, Royal Economic Society, vol. 99(394), pages 108-115, March.
    3. Jacob K. Goeree & Theo Offerman, 2003. "Competitive Bidding in Auctions with Private and Common Values," Economic Journal, Royal Economic Society, vol. 113(489), pages 598-613, July.
    4. Hendricks, Kenneth & Porter, Robert H, 1992. "Joint Bidding in Federal OCS Auctions," American Economic Review, American Economic Association, vol. 82(2), pages 506-511, May.
    5. Nicola Persico, 2000. "Information Acquisition in Auctions," Econometrica, Econometric Society, vol. 68(1), pages 135-148, January.
    6. Kenneth Hendricks & Joris Pinkse & Robert H. Porter, 2003. "Empirical Implications of Equilibrium Bidding in First-Price, Symmetric, Common Value Auctions," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 115-145.
    7. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
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    11. Schweizer, Urs & von Ungern-Sternberg, Thomas, 1983. "Sealed Bid Auctions and the Search for Better Information," Economica, London School of Economics and Political Science, vol. 50(197), pages 79-85, February.
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    14. Colin Campbell & Dan Levin, 2006. "When and why not to auction," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 27(3), pages 583-596, April.
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    More about this item

    Keywords

    common value auctions; mergers; collusion; information;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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