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Almost Common Value Auctions: The 'Wallet Game' and its Applications to Takeover Battles and Airwaves Auctions

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  • Klemperer, Paul

Abstract

We use a classroom game, the ‘Wallet Game’, to show that in standard ascending, i.e. English, auctions of close-to-common-values objects, even slight asymmetries between bidders can have very large effects on prices. Examples of small asymmetries are a small value advantage for one bidder or a small ownership of the object by one bidder; the effects of these asymmetries are greatly exacerbated by entry costs or bidding costs. We discuss applications to airwaves auctions and takeover battles including the Glaxo-Wellcome merger.

Suggested Citation

  • Klemperer, Paul, 1997. "Almost Common Value Auctions: The 'Wallet Game' and its Applications to Takeover Battles and Airwaves Auctions," CEPR Discussion Papers 1682, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1682
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    Cited by:

    1. Olga Gorelkina, 2014. "Bidder Collusion and the Auction with Target Bids," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2014_10, Max Planck Institute for Research on Collective Goods.
    2. Peter Cramton, 2002. "Spectrum Auctions," Papers of Peter Cramton 01hte, University of Maryland, Department of Economics - Peter Cramton, revised 16 Jul 2001.
    3. Cramton, Peter, 1998. "Ascending auctions," European Economic Review, Elsevier, vol. 42(3-5), pages 745-756, May.

    More about this item

    Keywords

    Airwaves Auction; Auction Theory; Common Values; Corporate Acquisitions; Mergers; PCS Auction; Spectrum Auction; Takeovers; Winner's Curse;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications

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