Abstract
We examine theoretically and experimentally two countervailing effects of industry concentration in common value auctions. Greater concentration of information among fewer bidders reduces competition but increases the precision of private estimates. We demonstrate that this generally leads to more aggressive bidding. However, the reduction in competition dominates the informational effects, resulting in lower prices. We examine these hypothesized effects experimentally by conducting a series of auctions with constant informational content but distributed among a varying number of bidders. The experimental results are consistent with our theoretical predictions.
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The authors would like to thank Octavian Carare, Eric Friedman, Luke Froeb, Ron Harstad, Toshi Iizuka, Mike Rothkopf, Charles Thomas, and two anonymous referees, for many useful comments and suggestions.
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Mares, V., Shor, M. Industry concentration in common value auctions: theory and evidence. Economic Theory 35, 37–56 (2008). https://doi.org/10.1007/s00199-007-0223-x
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DOI: https://doi.org/10.1007/s00199-007-0223-x