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Industry Concentration in Common Value Auctions: Theory and Evidence

Vlad Mares
Washington University, St. Louis - John M. Olin School of Business

Mikhael Shor
Vanderbilt University - Owen Graduate School of Management

December 1, 2006

Economic Theory, Vol. 35, No. 1, 2008

Abstract:
We examine theoretically and experimentally two countervailing effects of industry concentration in common value auctions. Greater concentration of information among fewer bidders reduces competition but increases the precision of private estimates. We demonstrate that this generally leads to more aggressive bidding. However, the reduction in competition dominates the informational effects, resulting in lower prices. We examine these hypothesized effects experimentally by conducting a series of auctions with constant informational content but distributed among a varying number of bidders. The experimental results are consistent with our theoretical predictions.

Keywords: common value auctions, information, joint bidding, industry concentration

JEL Classifications: D44, L41, C92

Working Paper Series

Date posted: May 10, 2006 ; Last revised: September 11, 2008

Suggested Citation

Mares, Vlad N. and Shor, Mikhael, Industry Concentration in Common Value Auctions: Theory and Evidence (December 1, 2006). Economic Theory, Vol. 35, No. 1, 2008. Available at SSRN: http://ssrn.com/abstract=901067

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Contact Information

Mikhael Shor (Contact Author) Vanderbilt University - Owen Graduate School of Management ( email ) 401 21st Avenue South 352 Management Hall Nashville, TN 37203 United States
Vladimir N. Mares Washington University, St. Louis - John M. Olin School of Business ( email ) One Brookings Drive Campus Box 1133 St. Louis, MO 63130-4899 United States 314-935-4934 (Phone)