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RFS Advance Access published online on October 28, 2005
Review of Financial Studies, doi:10.1093/rfs/hhj005
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© The Author 2005. Published by Oxford University Press on behalf of the by The Society for Financial Studies. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org.

Article

Competition and Cooperation in Divisible Good Auctions: An Experimental Examination*

Orly Sade 1, Charles Schnitzlein 2, and Jaime F. Zender 3*
1 Jerusalem School of Business, Hebrew University of Jerusalem
2 College of Business, University of Central Florida
3 Leeds School of Business, University of Colorado at Boulder

* To whom correspondence should be addressed.
Jaime F. Zender, E-mail: jaime.zender{at}colorado.edu


  Abstract

An experimental approach is used to examine the performance of three different multi-unit auction designs: discriminatory, uniform-price with fixed supply, and uniformprice with endogenous supply. We find the actual strategies to be inconsistent with theoretically identified equilibrium strategies. The discriminatory auction is found to be more susceptible to collusion than either uniform-price auction and so, contrary to theoretical predictions and previous experimental results, it generates the lowest average revenue. Consistent with theoretical predictions, the actual bid schedules are more elastic with reducible supply or discriminatory pricing than in the uniform-price auction with fixed supply.

*We thank Emmanuel Morales-Camargo and Yelena Larkin for their excellent research assistance and Yigal Arnon, the CEO, and the employees of Bank Leumi of Israel and the management and the employees of the Monetary Department of the Bank of Israel for their help in gathering the data from the professional participants. We have benefited from comments by Haim Levy, Frans van Winden, Vernon Smith, Atanu Sinha, Jill Zender, Nathalie Moyen, Brian Kluger, Glenn Harrison, Maureen O’Hara (the editor), an anonymous referee, and seminar participants at the University of Central Florida, University of Connecticut, IDC, Hebrew University of Jerusalem, Technion, Tel-Aviv University, Norwegian School of Economics and Business Administration, Toulouse Business School, Aston Business School, Erasmus University, University of South Florida, Atlanta Federal Reserve, 1999 IFREE/Economic Science Laboratory Summer Visiting Graduate Workshop, 2002 ESA meetings at Harvard, 2003 Southern Finance Association Meetings, and the 2003 Auction and Market Design Conference in Milan. Sade thanks the Krueger Center for Finance at the Hebrew University of Jerusalem for partial financial support.
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