Working Paper: CEPR ID: DP1682
Authors: Paul Klemperer
Abstract: We use a classroom game, the ?Wallet Game?, to show that in standard ascending, i.e. English, auctions of close-to-common-values objects, even slight asymmetries between bidders can have very large effects on prices. Examples of small asymmetries are a small value advantage for one bidder or a small ownership of the object by one bidder; the effects of these asymmetries are greatly exacerbated by entry costs or bidding costs. We discuss applications to airwaves auctions and takeover battles including the Glaxo-Wellcome merger.
Keywords: auction theory; common values; winners curse; takeovers; mergers; corporate acquisitions; personal communications; spectrum auction; airwaves auction
JEL Codes: D44; G34; L96
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| small advantages (e.g., ownership stakes) (D33) | bidder's probability of winning (D44) |
| small advantages (e.g., ownership stakes) (D33) | price paid by the bidder (D44) |
| bidding costs (D44) | effects of small asymmetries (D91) |
| small advantage (e.g., Glaxo's advantage) (D43) | final bid price (D44) |
| small advantages (F11) | reduce winner's curse for advantaged bidder (D44) |
| increased risk for competitors (L83) | conservative bidding behavior (D44) |