Overbidding
Yannai Gonczarowski and Sergiu Hart
Abstract
Consider monopolistic pricing with a single buyer.
We show that, when there are multiple goods, it may be (ex post) profitable
for the buyer to overbid, i.e.,
bid according to higher valuations.
We consider two main scenarios: strategic overbidding,
whereby the buyer's valuation is unchanged,
and costly overbidding,
whereby the valuation increases and the buyer
pays in full the change in his valuation.
We further show that overbidding may be
profitable not only for the buyer
but also for the seller and for the market,
increasing revenue, decreasing inefficiency, and reducing prices.
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© Sergiu Hart