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Horizontal Product Differentiation in Auctions and Multilateral Negotiations
Author(s) -
Thomas Charles J.,
Wilson Bart J.
Publication year - 2014
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/ecca.12090
Subject(s) - product differentiation , common value auction , competition (biology) , negotiation , microeconomics , economic surplus , product (mathematics) , economics , procurement , homogeneous , yield (engineering) , reverse auction , business , industrial organization , cournot competition , mathematics , market economy , ecology , materials science , geometry , management , combinatorics , political science , metallurgy , welfare , law , biology
We experimentally compare first‐price auctions and multilateral negotiations after introducing horizontal product differentiation into a standard procurement setting. Both institutions yield identical surplus for the buyer, a difference from prior findings with homogeneous products that results from differentiation's influence on sellers' pricing behaviour. The data are consistent with this finding being driven by concessions from low‐cost sellers in response to differentiation reducing their likelihood of being the buyer's surplus‐maximizing trading partner. Further analysis shows that introducing product differentiation increases the intensity of price competition among sellers, which contrasts with the conventional wisdom that product differentiation softens competition.