Scale Economies and the Dynamics of Recurring Auctions
Economic Inquiry, 40: 403-414 (2002)
17 Pages Posted: 29 Oct 1998 Last revised: 31 Oct 2017
Date Written: July 1, 1998
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.
JEL Classification: D44
Suggested Citation: Suggested Citation