Strategic Sequential Bidding for Government Land Auction Sales – Evidence from Singapore

43 Pages Posted: 10 Nov 2015 Last revised: 3 Feb 2017

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Jing Li

Singapore Management University

Ernie G. S. Teo

NUS Business School

Alan Cheong

Savills Valuation and Professional Services (S) Pte Ltd

Multiple version iconThere are 2 versions of this paper

Date Written: February 2, 2016

Abstract

This paper studies the extent to which equilibrium auction prices are affected by the order of sale and the extent of product differentiation in the context of government land auction sales. We propose a simple two-stage differentiated duopoly model where an incumbent winner of land from a previous auction bids on a new piece of land with the anticipation of competition between developed properties on both land parcels. Our simple model suggests that the closer substitutes both plots of land are, the more likely that the incumbent will bid higher. The model also predicts that the incumbent will bid higher than the winning price of the previous parcel, but may not necessarily win the bid. Using a unique dataset that covers the universe of tendering prices submitted by all developers for all residential land auction sales in Singapore, we test this theory and find that a tenderer’s bids are higher where there was a previous piece of land sold within two years and located within four kilometers. The price margin decreases with distance and time. Moreover, by comparing the sequential bidding behavior of the incumbent and the second highest bidder with slightly lower bid, we show that the incumbent is more likely to participate in subsequent auction sales, especially for closer sites. The evidence on winning the same site is insignificant, consistent with our model predictions.

Keywords: Land Sale Auctions, Strategic Sequential Bidding, Land Price, Housing Price, Product Differentiation

JEL Classification: D43, D44, L13, R31, R38

Suggested Citation

Agarwal, Sumit and Li, Jing and Teo, Ernie G. S. and Cheong, Alan, Strategic Sequential Bidding for Government Land Auction Sales – Evidence from Singapore (February 2, 2016). Available at SSRN: https://ssrn.com/abstract=2687839 or http://dx.doi.org/10.2139/ssrn.2687839

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

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

Jing Li (Contact Author)

Singapore Management University ( email )

90 Stamford Road
178903
Singapore

HOME PAGE: http://www.mysmu.edu/faculty/lijing/

Ernie G. S. Teo

NUS Business School ( email )

15 Kent Ridge Drive
119245
Singapore

Alan Cheong

Savills Valuation and Professional Services (S) Pte Ltd ( email )

30 CECIL STREET #20-03
049712
Singapore

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