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Discussion Paper Details

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Title: The Winner's Curse and the Failure of the Law of Demand

Author(s): Jeremy I. Bulow and Paul Klemperer

Publication Date: November 1997

Keyword(s): Airwaves Auction, Auction Theory, Common Value, Initial Public Offering, IPOs, PCS Auction, Spectrum Auction and Winner's Curse

Programme Area(s): Financial Economics and Industrial Organization

Abstract: We usually assume increases in supply, allocation by rationing, and exclusion of potential buyers will never raise prices. But all of 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? when buyers are symmetric, small asymmetries among buyers necessarily cause the anomalies to reappear.

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Bibliographic Reference

Bulow, J and Klemperer, P. 1997. 'The Winner's Curse and the Failure of the Law of Demand'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1754