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Synergies and Price Trends in Sequential Auctions

  • Paulo Klinger Monteiro


  • Flavio Menezes


In this paper we consider sequential 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 in declining expected prices. There are several corollaries. First, the seller is indifferent between selling the objects simultaneously as a bundle or sequentially when synergies are positive. 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 in unchanged. Finally, we examine two special cases with asymmetric players. In the first case, players 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. In the second case, one player wants two objects and the remaining players want one object each. For this example, we show that expected prices may not necessarily decrease as predicted by Branco (1997). The reason is that players with single-unit demand will generally bid less than their true valuations in the first period. Therefore, there are two opposing forces; the reduction in the bid of the player with multiple-demand in the last auction and less aggressive bidding in the first auction by the players with single-unit demand.

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Paper provided by EconWPA in its series Microeconomics with number 9901002.

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Date of creation: 13 Jan 1999
Date of revision: 03 Feb 1999
Handle: RePEc:wpa:wuwpmi:9901002
Note: Type of Document - Latex; prepared on IBM PC; to print on HP;
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  1. Jones, C. & Menezes, F. & Vella, F., 1996. "Auctions Price Anomalies: Evidence from Wool Auctions in Australia," Papers 303, Australian National University - Department of Economics.
  2. 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.
  3. Ashenfelter, O. & Genesove, D., 1992. "Testing for Price Anomalies in real Estate Auctions," Papers 128, Princeton, Department of Economics - Financial Research Center.
  4. Vijay Krishna & Robert Rosenthal, 1995. "Simultaneous Auctions with Synergies," Game Theory and Information 9503004, EconWPA.
  5. Bernhardt, Dan & Scoones, David, 1993. "A Note on Sequential Auctions," Working Papers 829, California Institute of Technology, Division of the Humanities and Social Sciences.
  6. McAfee R. Preston & Vincent Daniel, 1993. "The Declining Price Anomaly," Journal of Economic Theory, Elsevier, vol. 60(1), pages 191-212, June.
  7. 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.
  8. Vanderporten, Bruce, 1992. "Strategic behavior in pooled condominium auctions," Journal of Urban Economics, Elsevier, vol. 31(1), pages 123-137, January.
  9. 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.
  10. Fl. Menezes & P.K.Monteiro, 1994. "Sequential Asymmetric Auctions With Endogenous Participation," Microeconomics 9402001, EconWPA, revised 09 Jun 1994.
  11. 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.
  12. Branco, Fernando, 1997. "Sequential auctions with synergies: An example," Economics Letters, Elsevier, vol. 54(2), pages 159-163, February.
  13. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
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