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Overbidding to Harm Competitors: Sequential Auctions with Budget Constraints

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  • Marco Pagnozzi

    (Università di Napoli Federico II and CSEF)

Abstract

We analyze sequential ascending auctions with budget cons- trained bidders and relax the standard hypothesis that bidders cannot bid above their budget. In equilibrium, a bidder may choose to overbid — i.e., bid above his budget — in an early auction in order to deplete his rival and hence face a weaker competitor in a later auction. We discuss examples of this strategic behavior from US and European mobile-phone license auctions. Even if it reduces competition in later auctions, allowing bidders to overbid increases the total seller's revenue. So a seller has no incentive to exclude from the auction a bidder who is overbidding.

Suggested Citation

  • Marco Pagnozzi, 2006. "Overbidding to Harm Competitors: Sequential Auctions with Budget Constraints," Rivista di Politica Economica, SIPI Spa, vol. 96(5), pages 135-162, September.
    • Handle: RePEc:rpo:ripoec:v:96:y:2006:i:5:p:135-162
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    Cited by:

    1. Boudreau, James W. & Shunda, Nicholas, 2016. "Sequential auctions with budget constraints: Evidence from fantasy basketball auction drafts," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 62(C), pages 8-22.
    2. Youngwoo Koh, 2013. "Keyword auctions with budget-constrained bidders," Review of Economic Design, Springer;Society for Economic Design, vol. 17(4), pages 307-321, December.

    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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