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Scale economies and the dynamics of recurring auctions

  • Jeitschko, Thomas D.
  • Wolfstetter, Elmar

We analyze the dynamics of a game of sequential bidding in the presence of stochastic scale effects in the form of stochastic economies or diseconomies of scale. We show that economies give rise to declining expected equilibrium prices, whereas the converse is not generally true. Moreover, first- and second-price auctions are not always revenue equivalent. Indeed, economies of scale make the second-price format more profitable for the seller, whereas revenue equivalence holds in the case of diseconomies.

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Paper provided by Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes in its series SFB 373 Discussion Papers with number 1998,62.

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Date of creation: 1998
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Handle: RePEc:zbw:sfb373:199862
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  1. von der Fehr, N.-H. M. & Riis, C., 1998. "Option Values in Sequential Markets," Memorandum 07/1998, Oslo University, Department of Economics.
  2. Bernhardt, Dan & Scoones, David, 1994. "A Note on Sequential Auctions," American Economic Review, American Economic Association, vol. 84(3), pages 653-57, June.
  3. Paul Milgrom & Robert J. Weber, 1981. "A Theory of Auctions and Competitive Bidding," Discussion Papers 447R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
  5. McAfee R. Preston & Vincent Daniel, 1993. "The Declining Price Anomaly," Journal of Economic Theory, Elsevier, vol. 60(1), pages 191-212, June.
  6. Engelbrecht-Wiggans, Richard, 1994. "Sequential auctions of stochastically equivalent objects," Economics Letters, Elsevier, vol. 44(1-2), pages 87-90.
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