Working Paper: CEPR ID: DP4899
Authors: Jacob K. Goeree; Theo Offerman; Randolph Sloof
Abstract: Multi-unit ascending auctions allow for equilibria in which bidders strategically reduce their demand and split the market at low prices. At the same time, they allow for pre-emptive bidding by incumbent bidders in a coordinated attempt to exclude entrants from the market. We consider an environment where both demand reduction and pre-emptive bidding are supported as equilibrium phenomena of the ascending auction. In a series of experiments, we compare its performance to that of the discriminatory auction. Strategic demand reduction is quite prevalent in the ascending auction even when entry by the newcomer imposes a (large) negative externality on incumbents. As a result, the ascending auction performs worse than the discriminatory auction both in terms of revenue and efficiency, while the two auction formats offer similar chances for newcomers to enter the market.
Keywords: demand reduction; external effects; multi-license auctions
JEL Codes: C91; D44; D45
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| auction type (D44) | bidding behavior (D44) |
| bidding behavior (D44) | revenue outcomes (H27) |
| negative externalities (D62) | demand reduction (R22) |
| demand reduction (R22) | revenue outcomes (H27) |
| auction type (D44) | efficiency (D61) |
| negative externalities (D62) | incumbents' bidding strategies (D44) |
| demand reduction (R22) | preemptive bidding (D44) |