Prices and the Winner's Curse

Paul Klemperer, Jeremy Bulow
1999 Social Science Research Network  
We usually assume that increases in supply, allocation by rationing, and exclusion of potential buyers reduce prices. But all these activities raise the expected price in an important set of cases when common-value assets are sold. Furthermore, when we make the assumptions needed to rule out these "anomalies" for symmetric buyers, small asymmetries among the buyers necessarily cause the anomalies to reappear. Our results help explain rationing in initial public offerings and outcomes of
more » ... outcomes of spectrum auctions. We illustrate our results in the "Wallet Game" and in another new game we introduce, the "Maximum Game."
doi:10.2139/ssrn.162908 fatcat:gm4ydcp3r5f2lm2cmq7rlr2vqu