Effects of competition in first-price auctions

Abstract

This paper analyzes the effects of industrial concentration on bidding behavior and expected revenues. These effects are studied under the CIAPI model, an affiliated value set-up that nests a variety of valuation and information environments. We formally decompose the revenue effects coming from less competition into five types. The properties of these effects are discussed and conditions for (non)monotonicity of both the equilibrium bid and revenue are stated. Our results suggest that it is more likely that the seller benefits from less competition in markets with more complete valuation and information structures.

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Acknowledgements

This article is based on Chapter 3 of my Ph.D. dissertation at Universidad Carlos III de Madrid. I am deeply grateful to María Angeles de Frutos for her insightful comments, encouragement and guidance. This work is dedicated to her memory. I would like to thank two anonymous reviewers, an anonymous associate editor and Nicholas Yannelis (Editor-in-Chief) for their comments, which improved this article significantly. This work has also benefited from comments by Antonio Cabrales, Luciano de Castro, Ángel Hernando, Juan-José Ganuza, Diego Moreno, Vijay Krishna, and the participants in the 23\(^{th}\) European Economic Association (EEA) Meeting (University of Bocconi, Milan, 2008), the 32\(^{th}\) Spanish Economic Association Meeting (SAE) (University of Granada, 2007), and the 2011 LAMES/LACEA annual meeting (Universidad Adolfo Ibañez, Santiago de Chile, 2011). The usual disclaimers apply. I also thank Javier Arce for his excellent assistance in formatting the document and drawing the figures.

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Correspondence to Gino Loyola.

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Loyola, G. Effects of competition in first-price auctions. Econ Theory (2021). https://doi.org/10.1007/s00199-021-01347-8

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Keywords

  • Competition
  • Bidding markets
  • Conditionally independent affiliated private information model
  • Affiliated common values
  • Affiliation effect
  • First-price auctions

JEL Classification

  • C62
  • D44
  • D82
  • L41