Demand reduction and preemptive bidding in multiu

Authors: Jacob K Goeree Theo Offerman Randolph Sloof

Publish Date: 2012/09/05

Volume: 16, Issue: 1, Pages: 52-87

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Abstract

Multiunit 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 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 entrants’ chances are similar across the two formatsA former editor of this journal Timothy Cason acted as a guest editor on this submission His constructive remarks and those of two anonymous referees improved the presentation of the material We gratefully acknowledge financial support from the Dutch Royal Academy of Sciences KNAW and the European Research Council ERC Advanced Investigator Grant ESEI249433 We thank CREED programmer Jos Theelen for programming the experiment

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