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Industry Concentration in Common Value Auctions: Theory and Evidence

18 Pages Posted: 10 May 2006 Last revised: 1 Oct 2012

Vlad Mares

Washington University in St. Louis - John M. Olin Business School

Mikhael Shor

University of Connecticut Department of Economics

Date Written: December 1, 2006

Abstract

We examine theoretically and experimentally two countervailing effects of industry concentration in common value auctions. Greater concentration of information among fewer bidders reduces competition but increases the precision of private estimates. We demonstrate that this generally leads to more aggressive bidding. However, the reduction in competition dominates the informational effects, resulting in lower prices. We examine these hypothesized effects experimentally by conducting a series of auctions with constant informational content but distributed among a varying number of bidders. The experimental results are consistent with our theoretical predictions.

Keywords: common value auctions, information, joint bidding, industry concentration

JEL Classification: D44, L41, C92

Suggested Citation

Mares, Vlad and Shor, Mikhael, Industry Concentration in Common Value Auctions: Theory and Evidence (December 1, 2006). Economic Theory, Vol. 35, No. 1, 2008, pp. 37-56. Available at SSRN: https://ssrn.com/abstract=901067 or http://dx.doi.org/10.2139/ssrn.901067

Vladimir N. Mares

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-4934 (Phone)

Mikhael Shor (Contact Author)

University of Connecticut Department of Economics ( email )

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

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

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