Demand Reduction and Preemptive Bidding in Multi-Unit License Auctions

44 Pages Posted: 27 May 2005

See all articles by Jacob K. Goeree

Jacob K. Goeree

University of Zurich

Theo Offerman

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

Randolph Sloof

University of Amsterdam - Faculty of Economics & Business (FEB); Tinbergen Institute

Date Written: February 2005

Abstract

Multi-unit ascending auctions allow for equilibria in which bidders strategically reduce their demand and split the market at low prices. At the same time, they allow for pre-emptive bidding by incumbent bidders in a coordinated attempt to exclude entrants from the market. We consider an environment where both demand reduction and pre-emptive bidding are supported as equilibrium phenomena of the ascending auction. In a series of experiments, we compare its performance to that of the discriminatory auction. Strategic demand reduction is quite prevalent in the ascending auction even when entry by the newcomer imposes a (large) negative externality on incumbents. As a result, the ascending auction performs worse than the discriminatory auction both in terms of revenue and efficiency, while the two auction formats offer similar chances for newcomers to enter the market.

Keywords: Multi-license auctions, demand reduction, external effects

JEL Classification: C91, D44, D45

Suggested Citation

Goeree, Jacob K. and Offerman, Theo and Sloof, Randolph, Demand Reduction and Preemptive Bidding in Multi-Unit License Auctions (February 2005). CEPR Discussion Paper No. 4899. Available at SSRN: https://ssrn.com/abstract=730646

Jacob K. Goeree (Contact Author)

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

HOME PAGE: http://www.econ.uzh.ch/faculty/jgoeree.html

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)

Randolph Sloof

University of Amsterdam - Faculty of Economics & Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 5241 (Phone)
+31 20 525 4310 (Fax)

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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