DP1682 Almost Common Value Auctions: The 'Wallet Game' and its Applications to Takeover Battles and Airwaves Auctions

Author(s):	Paul Klemperer
Publication Date:	August 1997
Keyword(s):	Airwaves Auction, Auction Theory, Common Values, Corporate Acquisitions, Mergers, PCS Auction, Spectrum Auction, Takeovers, Winner's Curse
JEL(s):	D44, G34, L96
Programme Areas:	Financial Economics, Industrial Organization
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=1682

We use a classroom game, the ?Wallet Game?, to show that in standard ascending, i.e. English, auctions of close-to-common-values objects, even slight asymmetries between bidders can have very large effects on prices. Examples of small asymmetries are a small value advantage for one bidder or a small ownership of the object by one bidder; the effects of these asymmetries are greatly exacerbated by entry costs or bidding costs. We discuss applications to airwaves auctions and takeover battles including the Glaxo-Wellcome merger.