Efficiency and synergy in a multi-unit auction with and without package bidding: An experimental study

Kirill Chernomaz and Dan Levin ()

Games and Economic Behavior, 2012, vol. 76, issue 2, 611-635

Abstract: We study, theoretically and experimentally, sealed-bid first-price auctions with and without package bidding. In the model, a global bidder bids for multiple items and can benefit from synergies, while local bidders bid for a single item. In the equilibrium, package bidding improves (hurts) efficiency at high (low) levels of synergies. Package bidding introduces free-riding incentives for local bidders resulting in asymmetric bidding that reduces efficiency when synergies are low but increases it with high synergies. The free ridding incentive lowers bidding of local and global bidders reducing revenues at all levels of synergies. We conduct experiments varying auction rules and the degree of synergies. Observed efficiencies are qualitatively consistent with the theory. The effect of package bidding on revenues is negative when global bidders are not allowed to bid on single items (a feature of the equilibrium) and positive when the restriction is relaxed and synergies are high.

Keywords: Combinatorial auctions; Package bidding; Free-riding; Asymmetric auctions; Independent private value; First-price auctions; Experimental economics (search for similar items in EconPapers)
JEL-codes: C72 C91 D44 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:76:y:2012:i:2:p:611-635

DOI: 10.1016/j.geb.2012.07.008

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