Synergies and price trends in sequential auctions

Menezes, Flavio M. and Monteiro, Paulo K. (2003) Synergies and price trends in sequential auctions. Review of Economic Design, 8 1: 85-98. doi:10.1007/s10058-003-0090-2

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Author Menezes, Flavio M.
Monteiro, Paulo K.
Title Synergies and price trends in sequential auctions
Journal name Review of Economic Design   Check publisher's open access policy
ISSN 1434-4750
Publication date 2003-08
Year available 2003
Sub-type Article (original research)
DOI 10.1007/s10058-003-0090-2
Volume 8
Issue 1
Start page 85
End page 98
Total pages 14
Place of publication Heidelberg
Publisher Springer Berlin
Language eng
Subject 340000 Economics
Abstract In this paper we consider sequential second-price auctions where an individual's value for a bundle of objects is either greater than the sum of the values for the objects separately (positive synergy) or less than the sum (negative synergy). We show that the existence of positive synergies implies declining expected prices. When synergies are negative, expected prices are increasing. There are several corollaries. First, the seller is indifferent between selling the objects simultaneously as a bundle or sequentially when synergies are positive. Second, when synergies are negative, the expected revenue generated by the simultaneous auction can be larger or smaller than the expected revenue generated by the sequential auction. In addition, in the presence of positive synergies, an option to buy the additional object at the price of the first object is never exercised in the symmetric equilibrium and the seller's revenue is unchanged. Under negative synergies, in contrast, if there is an equilibrium where the option is never exercised, then equilibrium prices may either increase or decrease and, therefore, the net effect on the seller's revenue of the introduction of an option is ambiguous. Finally, we examine a special case with asymmetric players who have distinct synergies. In this example, even if one player has positive synergies and the other has negative synergies, it is still possible for expected prices to decline
Keyword Synergies
sequential auctions
increasing and decreasing expected prices
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Unknown

Document type: Journal Article
Sub-type: Article (original research)
Collections: Excellence in Research Australia (ERA) - Collection
School of Economics Publications
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Created: Thu, 08 Jan 2009, 11:27:48 EST by Ms Lynette Adams on behalf of Faculty of Business, Economics & Law