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First-Price Auctions to Sell Heterogeneous Licenses. CREED Working Paper

By Jacob K. Goeree and Theo Offerman

Abstract

We consider auctions where bidders can acquire at most one of several heterogeneous licenses. It has been speculated that the simultaneous ascending auction performs poorly in uncompetitive situations, i.e. when the number of licenses equals the number of incumbents who have clear advantages over a few potential entrants. Moreover, it has been suggested that incorporating a first-price element may bolster competition in this case (Klemperer, 2002). This paper considers three alternative ways to sell heterogenous licenses via a first-price format. In the simultaneous first-price auction, bidders simultaneously submit sealed-bids for all licenses, which are allocated such that revenue is maximized. In the sequential first-price auction, licenses are sold one after another using the familiar (single-unit) first-price procedure. In the simultaneous descending auction, license prices start at some common high level and fall simultaneously until the "clock" for a license is stopped. We compare the performance of the three first-price formats with that of the simultaneous ascending auction in a controlled laboratory setting. The experiments involve several bidding environments of varying complexity. We find that the simultaneous ascending auction achieves the highest levels of efficiency but also has several drawbacks: (i) its revenues are low and highly variable, (ii) per-license profits vary greatly, and (iii) the incidence of winner’s curse outcomes is high. In contrast, the simultaneous first-price auction scores well on all points and achieves nearly the same level of efficiency. Finally, seller’s revenues are highest when the licenses are sold sequentially, in decreasing order of quality

Topics: 1
Year: 2002
OAI identifier: oai:CiteSeerX.psu:10.1.1.195.1262
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