Auctions with Positive Synergies: Experimental Evidence

41 Pages Posted: 21 Feb 2009

See all articles by Yuen Leng Chow

Yuen Leng Chow

National University of Singapore - Institute of Real Estate Studies

Abdullah Yavas

University of Wisconsin - School of Business - Department of Real Estate and Urban Land Economics

Date Written: January 1, 2009

Abstract

In a standard auction, bidders bid more aggressively when the number of bidders increases. However, Krishna and Rosenthal (1996, Games and Economic Behavior) show that when bidders have multiple-unit demand that generates positive synergies, bidders bid less aggressively as the number of bidders increases. The first objective of this paper is to offer experimental evidence on this seemingly counter-intuitive theoretical prediction. Following the model of Krishna and Rosenthal, we design a simultaneous second-price sealed-bid auction for two objects with two types of bidders: single-object and multiple-object demand bidders. Our results show that bidders bid less aggressively with increased competition. The second objective is to investigate the effect of offering global bidders the option of bidding for both objects as a package as well as submitting individual bids for each object. Controlling for bidders' valuations, we find that offering this option to global bidders increases allocative efficiency and sellers' revenue.

Keywords: Auction, Positive Synergies, Increased Competition, Package Bids

JEL Classification: C91, D44

Suggested Citation

Chow, Yuen Leng and Yavas, Abdullah, Auctions with Positive Synergies: Experimental Evidence (January 1, 2009). Available at SSRN: https://ssrn.com/abstract=1326245 or http://dx.doi.org/10.2139/ssrn.1326245

Yuen Leng Chow (Contact Author)

National University of Singapore - Institute of Real Estate Studies ( email )

21 Heng Mui Keng Terrace #04-02
119613
Singapore
+65-66015040 (Phone)

Abdullah Yavas

University of Wisconsin - School of Business - Department of Real Estate and Urban Land Economics ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States

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