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Regular version of the site

Article

Raising rivals' cost in multi-unit auctions

Janssen M. C., Karamychev V.

Highlights

 

We study whether SAAs and CCAs generate prices that reflect bidders’ opportunity costs.

When bidders have preferences to raise rivals’ cost, CCAs may fail to generate market-oriented prices.

Even when a CCA ends with excess supply, it may fail to generate market-oriented prices.

The objective many telecom regulators want to achieve when they decide to auction spectrum is that acquiring firms pay a market price (based on the opportunity cost principle). The simultaneous ascending auction may fail in this respect, as it provides bidders with an opportunity to engage in strategic demand reduction. This paper asks whether the combinatorial clock auction (CCA) fares better in this respect. We show that the answer to this question depends on the objectives bidders have. If bidders have only the slightest preference to raise rivals' cost, they will use the opportunities the CCA provides them to engage in strategic demand expansion. This is even the case when the clock phase ends with excess demand. © 2016 Elsevier B.V.