Auctioning Horizontally Differentiated Items |
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Authors: | Sarah Parlane |
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Institution: | (1) School of Economics, University College Dublin, Belfield, Dublin 4, Ireland, UK |
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Abstract: | This paper analyzes competition between two sellers that offer horizontally differentiated items at competing auctions. Three
possible outcomes can arise in equilibrium. For substantially differentiated items the monopoly reserve prices form an equilibrium,
and the market is not entirely covered. When products become closer substitutes, a non-empty interval of types becomes valuable
to both sellers. When transport costs are low, and virtual valuations are high, sellers compete for these bidders and set
their reserve prices below the valuation of the marginal bidder. In equilibrium all types enjoy participation rents. For intermediate
levels of transport costs it is not worth competing for runaway bidders. In this case, there is a continuum of equilibria.
In each equilibrium sellers adjust their reserve prices so that the marginal bidder gets no rents. |
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Keywords: | Competition English auction Horizontal product differentiation Reserve price |
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