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Demand reduction and preemptive bidding in multi-unit license auctions

Published online by Cambridge University Press:  14 March 2025

Jacob K. Goeree ,
Theo Offerman  and
Randolph Sloof
Jacob K. Goeree
Affiliation:
Department of Economics, University of Zurich, Blümlisalpstrasse 10, 8006 Zurich, Switzerland
Theo Offerman
Affiliation:
Department of Economics, University of Amsterdam, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands
Randolph Sloof*
Affiliation:
Department of Economics, University of Amsterdam, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands
*
[email protected]
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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 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 formats.

Keywords

Multi-license auctionsDemand reductionExternal effectsPreemption

JEL classification

D45: Rationing • Licensing D44: Auctions C91: Laboratory, Individual Behavior
Type
Article
Information
Experimental Economics , Volume 16 , Issue 1: Mechanisms and Methodology , March 2013 , pp. 52 - 87
Copyright
Copyright © 2012 Economic Science Association

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Footnotes

Electronic Supplementary Material The online version of this article (doi:https://doi.org/10.1007/s10683-012-9338-4) contains supplementary material, which is available to authorized users.

A 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, ESEI-249433). We thank CREED programmer Jos Theelen for programming the experiment.

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