Demand Reduction and Preemptive Bidding in Multi-Unit License Auctions

Zurich IER Working Paper No. 430

Tinbergen Institute Discussion Papers

49 Pages Posted: 22 Nov 2004

See all articles by J. K. Goeree

J. K. Goeree

UNSW Business School

T. J. S. Offerman

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

Randolph Sloof

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

Date Written: September 9, 2009

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 preemptive bidding by incumbent bidders in a coordinated attempt to exclude entrants from the market. We consider an environment where both demand reduction and preemptive 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, preemption

JEL Classification: D44, D45, C91

Suggested Citation

Goeree, J. K. and Offerman, T. J. S. and Sloof, Randolph, Demand Reduction and Preemptive Bidding in Multi-Unit License Auctions (September 9, 2009). Zurich IER Working Paper No. 430, Tinbergen Institute Discussion Papers, Available at SSRN: https://ssrn.com/abstract=621521 or http://dx.doi.org/10.2139/ssrn.621521

J. K. Goeree (Contact Author)

UNSW Business School

UNSW Business School
High St
Sydney, NSW 2052
Australia

T. J. S. Offerman

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

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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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