Horizontal Product Differentiation in Auctions and Multilateral Negotiations

44 Pages Posted: 29 Mar 2010 Last revised: 11 Apr 2012

See all articles by Charles J. Thomas

Charles J. Thomas

Chapman University - The George L. Argyros College of Business and Economics

Bart J. Wilson

Chapman University - Smith Institute for Political Economy and Philosophy; Chapman University - Economic Science Institute (ESI); Chapman University, The Dale E. Fowler School of Law

Date Written: April 8, 2012

Abstract

We experimentally compare first-price auctions and multilateral negotiations after introducing horizontal product differentiation into a standard procurement setting. Both institutions yield identical surplus for the buyer, a difference from prior findings with homogeneous products that results from differentiation’s influence on sellers’ pricing behavior. The data are consistent with this finding being driven by concessions from low-cost sellers in response to differentiation reducing their likelihood of being the buyer’s surplus-maximizing trading partner. Further analysis shows that introducing product differentiation increases the intensity of price competition among sellers, which contrasts with the conventional wisdom that product differentiation softens competition.

Keywords: voluntary exchange, multilateral negotiations, auctions, product differentiation

JEL Classification: C78, D44, C9, L14

Suggested Citation

Thomas, Charles J. and Wilson, Bart J., Horizontal Product Differentiation in Auctions and Multilateral Negotiations (April 8, 2012). Available at SSRN: https://ssrn.com/abstract=1578472 or http://dx.doi.org/10.2139/ssrn.1578472

Charles J. Thomas (Contact Author)

Chapman University - The George L. Argyros College of Business and Economics ( email )

1 University Drive
Orange, CA 92866
United States

Bart J. Wilson

Chapman University - Smith Institute for Political Economy and Philosophy ( email )

One University Drive
Orange, CA 92866
United States
(714) 628-7306 (Phone)

HOME PAGE: http://www.bartjwilson.com

Chapman University - Economic Science Institute (ESI) ( email )

One University Drive
Orange, CA 92866
United States
(714) 628-7306 (Phone)

Chapman University, The Dale E. Fowler School of Law ( email )

One University Drive
Orange, CA 92866-1099
United States
(714) 628-7306 (Phone)

HOME PAGE: http://www.bartjwilson.com

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