Integrating the Structural Auction Approach and Traditional Measures of Market Power

Integrating the Structural Auction Approach and
Traditional Measures of Market Power

Abstract

This study asks the question, what is the relationship between traditional models of
market power and structural auction models? An encompassing model is derived that
considers both price markdowns due to bid shading during an auction and price
markdowns at the industry-level due to imperfect competition. Data from a cattle
procurement experimental market is used to compare the appropriateness of the two
alternative theories. Regression results show that while the number of firms is more
important than the number of bidders on lot of cattle in explaining pricing behavior in the
game, the number of bidders does contain some unique information and should be
included in the model. Both the traditional NEIO and structural auction approaches
overestimated the true markdowns possibly due to failure to account for the winners
curse.

Keywords

Bid shading, experimental cattle market, imperfect competition, price markdowns

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