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Demand Reduction and Preemptive Bidding inMulti-Unit License Auctions


Goeree, Jacob K; Offermann, Theo; Sloof, Randolph (2009). Demand Reduction and Preemptive Bidding inMulti-Unit License Auctions. Working paper series / Institute for Empirical Research in Economics No. 430, University of Zurich.

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 preemptive bidding by incumbent bidders in a coordinated attempt to exclude entrants fromnthe market. We consider an environment where both demand reduction and preemptivenbidding 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 imposes a (large) negative externality on incumbents. As a result, the ascending auction performsnworse than the discriminatory auction both in terms of revenue and efficiency, while entrants.chances are similar across the two formats.

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 preemptive bidding by incumbent bidders in a coordinated attempt to exclude entrants fromnthe market. We consider an environment where both demand reduction and preemptivenbidding 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 imposes a (large) negative externality on incumbents. As a result, the ascending auction performsnworse than the discriminatory auction both in terms of revenue and efficiency, while entrants.chances are similar across the two formats.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:September 2009
Deposited On:29 Nov 2011 20:09
Last Modified:05 Apr 2017 23:09
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html

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