Complements and Substitutes in Sequential Auctions: The Case of Water Auctions

72 Pages Posted: 2 Oct 2015 Last revised: 16 Nov 2018

See all articles by Javier D. Donna

Javier D. Donna

University of Florida

José-Antonio Espín-Sánchez

Yale University; Yale University - Cowles Foundation; Economic Growth Center

Date Written: February 15, 2018

Abstract

We use data on sequential water auctions to estimate demand when units are complements or substitutes. A sequential English auction model determines the estimating structural equations. When units are complements, one bidder wins all units by paying a high price for the first unit, thus deterring others from bidding on subsequent units. When units are substitutes, different bidders win the units with positive probability, paying prices similar in magnitude. We recover individual demand consistent with this stark pattern of outcomes and confirm it is not collusive but consistent with noncooperative behavior. Demand estimates are biased if one ignores these features.

Keywords: Auctions, Structural Demand Estimation, Market Structure, Competition, Collusion

JEL Classification: D44, C13, L10, L40

Suggested Citation

Donna, Javier D. and Espin-Sanchez, Jose-Antonio, Complements and Substitutes in Sequential Auctions: The Case of Water Auctions (February 15, 2018). RAND Journal of Economics, Vol. 49, No. 1, 2018, Available at SSRN: https://ssrn.com/abstract=2667579 or http://dx.doi.org/10.2139/ssrn.2667579

Javier D. Donna (Contact Author)

University of Florida ( email )

Gainesville, FL 32606
United States

HOME PAGE: http://www.jdonna.org/

Jose-Antonio Espin-Sanchez

Yale University ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
2034320890 (Phone)

HOME PAGE: http://campuspress.yale.edu/espin/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

Economic Growth Center ( email )

Box 208269
New Haven, CT 06520-8269
United States

HOME PAGE: http://https://egcenter.economics.yale.edu/

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