Prices and the Winner's Curse

Posted: 11 Feb 2002

See all articles by Paul Klemperer

Paul Klemperer

University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)

Jeremy Bulow

Stanford University; National Bureau of Economic Research (NBER)

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Abstract

We usually assume that increases in supply, allocation by rationing, and exclusion of potential buyers reduce prices. But all these activities raise the expected price in an important set of cases when common-value assets are sold. Furthermore, when we make the assumptions needed to rule out these "anomalies" for symmetric buyers, small asymmetries among the buyers necessarily cause the anomalies to reappear. Our results help explain rationing in initial public offerings and outcomes of spectrum auctions. We illustrate our results in the "Wallet Game" and in another new game we introduce, the "Maximum Game."

Suggested Citation

Klemperer, Paul and Bulow, Jeremy I., Prices and the Winner's Curse. RAND Journal of Economics, Vol. 33, No. 1, Spring 2002. Available at SSRN: https://ssrn.com/abstract=294542

Paul Klemperer (Contact Author)

University of Oxford - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Jeremy I. Bulow

Stanford University ( email )

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