Creating Competition Out of Thin Air: Market Thickening and Right-to-Choose Auctions

Andrew Schotter, Theo Offerman and Kfir Eliaz

No 4678, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study a procedure for selling multiple heterogenous goods, which is commonly used in practice but rarely studied in the literature. The novel feature of this procedure is that instead of selling the goods themselves, the seller offers buyers the right to choose among the available goods. Thus, buyers who are after completely different goods are forced to compete for the same good, the ?right to choose?. Competition can be further enhanced by restricting the number of rights that are sold. This is shown both theoretically and experimentally. Our main experimental finding is that by auctioning ?rights-to-choose? rather than the goods themselves, the seller induces an aggressive bidding behaviour that generates more revenue than the theoretical optimal mechanism.

Keywords: Right-to-choose auctions; Experimental auctions; Behavioural mechanism-design (search for similar items in EconPapers)
JEL-codes: C91 D44 (search for similar items in EconPapers)
Date: 2004-10
New Economics Papers: this item is included in nep-com and nep-exp
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Working Paper: Creating competition out of thin air: Market thickening and right-to-choose auctions (2003)
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