Multi-unit demand auctions with synergies: behavior in sealed-bid versus ascending-bid uniform-price auctions |
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Authors: | John H Kagel Dan Levin |
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Institution: | Department of Economics, The Ohio State University, Columbus, OH, USA |
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Abstract: | We construct a relatively simple model of bidding with synergies and solve it for both open outcry and sealed-bid uniform-price auctions. The essential behavioral forces involved in these auctions are: (1) A demand reduction force resulting from the monopsony power that bidders with multiple-unit demands have when synergies are relatively inconsequential, and (2) Bidding above stand-alone values in order to capture significant complementarities between units. The latter creates a potential “exposure problem,” as bidders may win only parts of a package and earn negative profits. Bidding outcomes are closer to equilibrium in clock compared to sealed-bid auctions. However, there are substantial and systematic deviations from equilibrium, with patterns of out-of-equilibrium play differing systematically between the two auction formats. These patterns of out-of-equilibrium play are analyzed, along with their effects on revenue and efficiency. |
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Keywords: | Auction Synergies Exposure problem Experiment |
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