Bidding for Clubs

Benoit Julien, John Kennes and Moritz Ritter

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

Abstract: This paper studies the mechanism by which club memberships, activities, and rules are chosen in a decentralized economy. For this purpose, we develop a model of competing auctions for club goods. This is a dynamic game where each seller first chooses an auction format; next, each buyer chooses a seller; and, finally, each buyer bids for membership. If sellers are restricted to simple auctions without reserve prices, then the decentralized equilibrium is generally inefficient across a multitude of important margins. However, if the sellers can compete by a broader class of auctions - and where the anonymity of buyer strategies implies coordination frictions - the sellers generally choose negative reserve prices and the equilibrium is constrained efficient. The advertisement of a negative reserve price is equivalent to the advertisement of an amenity that augments the value of the club good. The function of this amenity is to ensure a critical mass of bidders at the seller’s location. For example, if a firm is attempting to assemble a team to utilize a club good at its location, it will also choose to advertise commitment to an additional amenity, such as a set of free health club memberships, as a means to attract a critical mass of applicants.

Keywords: clubs; coordination frictions; Mortensen tax; Hosios rule; competing auctions (search for similar items in EconPapers)
JEL-codes: D44 D71 D85 J64 (search for similar items in EconPapers)
Pages: 29
Date: 2013-09-18
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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