Scale Economies and the Dynamics of Recurring Auctions
Humboldt University of Berlin - Faculty of Economics; Korea University - College of Economics and Commerce
Thomas D. Jeitschko
Michigan State University - Department of Economics
We analyze the dynamics of a game of sequential bidding in the presence of stochastic scale effects in the form of stochastic economies or diseconomies of scale. We show that economies give rise to declining expected equilibrium prices, whereas the converse is not generally true. Moreover, first- and second-price auctions are not always revenue equivalent. Indeed, economies of scale make the second-price format more profitable for the seller, whereas revenue equivalence is preserved in the case of diseconomies.
Number of Pages in PDF File: 17
JEL Classification: D44
Date posted: October 29, 1998