Impacts of a Capacity Advantaged Bidder in Sequential Common Value Auctions: Evidence from the Laboratory

CAMA Working Paper 17/2014

38 Pages Posted: 11 Feb 2014

See all articles by Kalyn Coatney

Kalyn Coatney

Mississippi State University

Dale J. Menkhaus

University of Wyoming

Sherrill Shaffer

University of Wyoming

Date Written: February 2014

Abstract

As bidders reach capacity throughout a sequential common value auction, theory predicts they will account for the option value of purchasing later units against fewer rivals. Mergers, joint purchasing arrangements, or a common bidding agent may result in a capacity advantaged bidder. Using laboratory experiments, we find that bidders account for the option value of winning later units when capacity constraints are significantly binding. Similar to the predictions of value advantaged bidder theory, the capacity advantaged bidder bids more aggressively, purchasing more units at lower prices than disadvantaged rivals. However, the creation of a capacity advantaged bidder transfers surplus to all bidders primarily due to the reduction in the number of bidders.

Suggested Citation

Coatney, Kalyn and Menkhaus, Dale J. and Shaffer, Sherrill, Impacts of a Capacity Advantaged Bidder in Sequential Common Value Auctions: Evidence from the Laboratory (February 2014). CAMA Working Paper 17/2014. Available at SSRN: https://ssrn.com/abstract=2393696 or http://dx.doi.org/10.2139/ssrn.2393696

Kalyn Coatney

Mississippi State University ( email )

Mississippi State, MS 39762
United States

HOME PAGE: http://www.agecon.msstate.edu/people/facultydetail.php?faculty=coatney

Dale J. Menkhaus

University of Wyoming ( email )

Box 3434 University Station
Department of Applied Agricultural Economics
Laramie, WY 82071
United States
307-766-5128 (Phone)
307-766-5544 (Fax)

Sherrill Shaffer (Contact Author)

University of Wyoming ( email )

P.O. Box 3985
Laramie, WY 82071-3985
United States
307-766-2173 (Phone)
307-766-5090 (Fax)

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