SEQUENTIAL AUCTIONS WITH ENDOGENOUSLY DETERMINED RESERVE PRICES

Rasim ÖZCAN (Boston College)

I model an auction game in which two identical licenses to participate in an oligopolistic market are sold sequentially. There is no incumbent. The first auction is a standard first-price, sealed-bid one with an exogenously set reserve price, while in the second one the reserve price is the price of the first license. Because of this rule, bidding strategies are different than any other commonly used auction formats. In this paper, I solve the bidders' behavior under such an auction setup. I drive the bid functions. I also compute the expected auction revenue for the seller. Then I compare the revenue for this auction with the revenue for the first-price, sealed-bid auction for the monopoly right because in this setup it seems that only one license can be sold. The results show that this auction format can perform better than the other one for some parameter values although sometimes it produces less revenue for the seller. There is a possibility that the second license is unsold. The auction setup analyzed here mimics the license auction for the Turkish Global Mobile Telecommunications in 2000 for two licenses.