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Scale Economies and the Dynamics of Recurring Auctions
Author(s) -
Jeitschko Thomas D.,
Wolfstetter Elmar
Publication year - 2002
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1093/ei/40.3.403
Subject(s) - diseconomies of scale , economics , common value auction , economies of scale , bidding , converse , microeconomics , scale (ratio) , revenue , economies of agglomeration , equivalence (formal languages) , econometrics , mathematics , finance , physics , geometry , discrete mathematics , quantum mechanics
We analyze the dynamics of a game of sequential bidding in the presence of stochastic scale effects, either economies or diseconomies of scale. We show that economies of scale give rise to declining expected equilibrium prices, whereas the converse is not generally true. Moreover, first‐ and second‐price auctions are not always revenue equivalent. Economies of scale make second‐price auctions more profitable for the seller, whereas revenue equivalence may be preserved in the case of diseconomies.