Complements and Substitutes in Sequential Auctions: The Case of Water Auctions

Donna, Javier and Espin-Sanchez, Jose (2018): Complements and Substitutes in Sequential Auctions: The Case of Water Auctions. Published in: RAND Journal of Economics , Vol. 49, No. 1 (2 February 2018): pp. 87-127.

Abstract

We use data on sequential water auctions to estimate demand when units are complements or substitutes. A sequential English auction model determines the estimating structural equations. When units are complements, one bidder wins all units by paying a high price for the first unit, thus deterring others from bidding on subsequent units. When units are substitutes, different bidders win the units with positive probability, paying prices similar in magnitude. We recover individual demand consistent with this stark pattern of outcomes and confirm it is not collusive but consistent with noncooperative behavior. Demand estimates are biased if one ignores these features.

• Item Type: MPRA Paper
• Language: English
• Keywords: Auctions, Structural Demand Estimation, Market Structure, Competition, Collusion
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C13 - Estimation: General; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D44 - Auctions; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L10 - General; L - Industrial Organization > L4 - Antitrust Issues and Policies > L40 - General

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