On the effects of joint bidding in independent private value auctions: An experimental study

This article explores the effect of a subset of symmetric bidders joining to bid together. Possible applications include mergers, collusion and joint-bidding arrangements. The change produces a "strong" party with a more advantageous value distribution than the remaining "weak" bidder(s). The predicted effects include ineffi ciency, a decrease in the seller’s revenue, and higher bidders’payoffs. Under risk neutrality, the members of the strong party benefit less than the weak bidders. The prediction is reversed when the bidders are suffi ciently risk averse. These hypotheses are tested experimentally. Contrary to the theory, joint-bidding increases effi ciency and the seller’s revenue decreases by less than expected. Strong bidders benefit more than weak bidders indicating that incentives to bid jointly may be greater than hypothesized. Additionally, the experiment assesses the effect of group decision making. A Nash equilibrium prediction for individual-group differences based on differences in risk attitudes is not supported by the data. JEL Classification: C72, C91, C92, D44