Creating Competition Out of Thin Air: Market Thickening and Right-to-Choose Auctions

58 Pages Posted: 16 Dec 2004

See all articles by Kfir Eliaz

Kfir Eliaz

Brown University

Theo Offerman

University of Amsterdam - Faculty of Economics & Econometrics (FEE)

Andrew Schotter

New York University (NYU) - Department of Economics

Date Written: October 2004

Abstract

We study a procedure for selling multiple heterogenous goods, which is commonly used in practice but rarely studied in the literature. The novel feature of this procedure is that instead of selling the goods themselves, the seller offers buyers the right to choose among the available goods. Thus, buyers who are after completely different goods are forced to compete for the same good, the 'right to choose'. Competition can be further enhanced by restricting the number of rights that are sold. This is shown both theoretically and experimentally. Our main experimental finding is that by auctioning 'rights-to-choose' rather than the goods themselves, the seller induces an aggressive bidding behavior that generates more revenue than the theoretical optimal mechanism.

Keywords: Right-to-choose auctions, experimental auctions, behavioral mechanism-design

JEL Classification: C91, D44

Suggested Citation

Eliaz, Kfir and Offerman, Theo and Schotter, Andrew, Creating Competition Out of Thin Air: Market Thickening and Right-to-Choose Auctions (October 2004). CEPR Discussion Paper No. 4678. Available at SSRN: https://ssrn.com/abstract=636002

Kfir Eliaz (Contact Author)

Brown University ( email )

Economics Dept.
Box B
Providence, RI 02912
United States
401-863-2112 (Phone)
401-863-1970 (Fax)

HOME PAGE: http://www.econ.brown.edu/fac/Kfir_Eliaz/

Theo Offerman

University of Amsterdam - Faculty of Economics & Econometrics (FEE) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4294 (Phone)
+31 20 525 5283 (Fax)

Andrew Schotter

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States
212-998-8909 (Phone)
212-995-4186 (Fax)

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