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Predatory Bidding in Sequential Auctions

Author

Listed:
  • Hikmet Gunay

    (University of Manitoba)

  • Xin Meng

    (University of Manitoba)

Abstract
The Turkish government wanted to sell two GSM (cell-phone) licenses in 2000 with sequential auctions. The winning bid in the first auction would be the reserve price for the second auction. This auction design gives incentives to ``predatory bidding." We show how a strategic firm will bid too high in the first auction hence, no other firms can pay the reserve price in the second auction. The winning firm will make up for the high-bid in terms of more profit due to less competition in the market. We show that the government could have sold the two licenses and raised more revenue in a correctly designed sequential auction.

Suggested Citation

  • Hikmet Gunay & Xin Meng, 2007. "Predatory Bidding in Sequential Auctions," Economics Bulletin, AccessEcon, vol. 4(12), pages 1-5.
    • Handle: RePEc:ebl:ecbull:eb-07d00003
    as

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    File URL: http://www.accessecon.com/pubs/EB/2007/Volume4/EB-07D00003A.pdf
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    References listed on IDEAS

    as
    1. Paul Klemperer, 2002. "What Really Matters in Auction Design," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 169-189, Winter.
    2. Jeitschko, Thomas D., 1999. "Equilibrium price paths in sequential auctions with stochastic supply," Economics Letters, Elsevier, vol. 64(1), pages 67-72, July.
    3. Rasim Ozcan, 2004. "Sequential Auctions with Endogenously Determined Reserve Prices," Boston College Working Papers in Economics 592, Boston College Department of Economics.
    4. John McMillan, 1994. "Selling Spectrum Rights," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 145-162, Summer.
    5. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
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    More about this item

    JEL classification:

    • D0 - Microeconomics - - General
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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