Industry Concentration in Common Value Auctions: Theory and Evidence
Washington University in Saint Louis - John M. Olin Business School
University of Connecticut Department of Economics
December 1, 2006
Economic Theory, Vol. 35, No. 1, 2008, pp. 37-56
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.
Number of Pages in PDF File: 18
Keywords: common value auctions, information, joint bidding, industry concentration
JEL Classification: D44, L41, C92
Date posted: May 10, 2006 ; Last revised: October 1, 2012
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