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postbid market interaction and auction choice

Hongjun Zhong

Microeconomics from EconWPA

Abstract: We study the influence of product market competition on the first-price sealed auction and the English ascending auction with independent cost types. Bidders, valuing the license basing on the information released in the first stage license bidding game and the possible game they will play in the product market, care about not only whether they can win and thus how much to bid, but also the information released in the auction when they win. As in the English ascending auction, all bidders are able to constantly adjust their belief about their potential rival’s cost distribution, and the higher the bid goes, the lower the potential rival’s cost, the lower the expected gain from winning a license, thus bidders will keep downgrade the value of license and bid more conservatively and the government will generate lower expected revenue from the English auction than in first-price sealed auction. In particular, if the government uses the English ascending auction while the Bertrand price-cutting game being played in the product market, then all bidders except the two lowest cost type bidder will quit the bidding game sequentially and the expected revenue will be close to zero. Furthermore, as the Bertrand competition is more intensive than the Cournot competition, the government’s expected revenue is lower when the product market game played as a Bertrand game

Keywords: Auction; Oligopoly (search for similar items in EconPapers)
JEL-codes: D1 D2 D3 D4 (search for similar items in EconPapers)
Date: 2002-10-25
Note: Type of Document - Tex/WordPerfect/Handwritten; prepared on IBM PC - PC-TEX/UNIX Sparc TeX; to print on HP/PostScript/Franciscan monk; pages: 345,395,4323247 ; figures: included/request from author/draw your own. We never published this piece and now we would like to reduce our mailing and xerox cost by posting it.
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