Overbidding to Harm Competitors: Sequential Auctions with Budget Constraints

Marco Pagnozzi

Rivista di Politica Economica, 2006, vol. 96, issue 5, 135-162

Abstract: We analyze sequential ascending auctions with budget cons- trained bidders and relax the standard hypothesis that bidders cannot bid above their budget. In equilibrium, a bidder may choose to overbid — i.e., bid above his budget — in an early auction in order to deplete his rival and hence face a weaker competitor in a later auction. We discuss examples of this strategic behavior from US and European mobile-phone license auctions. Even if it reduces competition in later auctions, allowing bidders to overbid increases the total seller's revenue. So a seller has no incentive to exclude from the auction a bidder who is overbidding.

JEL-codes: D44 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (2)

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