The Informational Role of the Minimum Bid Increment Policy in a Repeated Simultaneous Auction with Synergies between Items

48 Pages Posted: 7 Aug 1996

Date Written: Undated

Abstract

The informational role of the minimum bid increment (MBI) policy in a simultaneous repeated auction is analyzed when there exists synergies between pairs of items and the extent of such synergies is private information. The observed behavior in the FCC auction, namely that each bidder lowers the extent by which he shades his valuation over time, is modeled by using a myopic strategy modified for the winning rule that is appropriate for repetitive simultaneous bidding. The seller is better off both in terms of expected revenue and the price obtained for the item using a minimum bid increment policy instead of announcing a reservation (ask) price at the start of each round. A given MBI yields the seller a higher expected revenue when synergies are present. The observed behavior of jump bids, with the size of the equilibrium jump increasing in the extent of synergy, is rationalized by modeling synergies as superadditivity of bidders' common value estimates.

JEL Classification: D44

Suggested Citation

Bhiladwalla, Maharukh, The Informational Role of the Minimum Bid Increment Policy in a Repeated Simultaneous Auction with Synergies between Items (Undated). Available at SSRN: https://ssrn.com/abstract=1195 or http://dx.doi.org/10.2139/ssrn.1195

Maharukh Bhiladwalla (Contact Author)

New York University ( email )

19 W 4th Street
NYU
New York, NY 10012
United States
732 991 3278 (Phone)

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