Does Auctioning of Entry Licences Affect Consumers Prices? An Experimental Study

On an increasing scale auctions are used to allocate the licenses to operate on markets which are thought not suited for free entry.According to standard economic arguments, the license fees paid at the auction will not affect consumer prices since they constitute a sunk cost.This standard view is not uncontested though.In the present paper we experimentally investigate two arguments for a potential upward effect of auctioning of prices: the incorporation of entry fees in prices due to the use of mark-up pricing rules, and the tendency of auctions to select the more collusive firms.Our results indicate that auctioning increases the probability of high prices, and that this is mainly due to the use of mark-up pricing rules.

Competitive Bidding in Auctions with Private and Common Values

The objects for sale in most auctions display both private and common value characteristics. This salient feature of many real-world auctions has not yet been incorporated into a strategic analysis of equilibrium bidding behavior. This paper reports such an analysis in the context of a stylized model in which bidders receive a private value signal and an independent common value signal. We show that more uncertainty about the common value results in lower efficiency and higher profits for the winning bidder. Information provided by the auctioneer decreases uncertainty, which improves efficiency and increases the seller's revenue. These positive effects of public information disclosure are stronger the more precise the information. Efficiency and revenues are also higher when more bidders enter the auction. Since our model nests both the private and common value case it may lead to an improved specification of empirical models of auctions.Auctions, inefficiencies, information disclosure, competition.

The Amsterdam Auction

Auctions used to sell houses often attract a diverse group of bidders, with realtors and speculators out for a bargain competing against buyers with a real interest in the house. Value asymmetries such as these necessitate careful consideration of the auction format as revenue equivalence cannot be expected to hold. From a theoretical viewpoint, Myerson's (1981) mechanism design approach has identified the seller's optimal choice. The proposed mechanism entails assigning credits to weaker bidders to promote competition and setting bidder-specific reserve prices. In practice, however, sellers often lack the detailed information needed to choose credits and reserve prices optimally, nor can they always discriminate among bidders. A more practical solution to the seller's problem is suggested by the "Amsterdam auction," where a premium is offered to encourage weak bidders to compete aggressively. This auction format, which has been used to sell houses in Amsterdam for centuries, treats all bidders the same and does not rely on detailed information about their value-distributions. In this paper, we consider premium auctions like the one in Amsterdam and demonstrate their revenue-generating virtues in asymmetric situations. We report the results of an experiment, which compares the standard first-price and English formats with two premium auctions in symmetric and asymmetric settings. The introduction of a premium leads weak bidders to set an endogenous reserve price for stronger rivals, with a dramatic effect on the sales price. Awarding a premium raises revenues, especially since Bertrand competition between weaker bidders virtually dissipates the premium to be paid.Auctions, experiments, asymmetries, premium

Competition for status creates superstars: An experiment on public good provision and network formation

We investigate a mechanism that facilitates the provision of public goods in a network formation game. We show how competition for status encourages a core player to realize efficiency gains for the entire group. In a laboratory experiment we systematically examine the effects of group size and status rents. The experimental results provide very clear support for a competition for status dynamic that predicts when, and if so which, repeated game equilibrium is reached. Two control treatments allow us to reject the possibility that the supergame effects we observe are driven by social motives