Rev Ind Organ (2008) 33:113–128
Auctioning Horizontally Differentiated Items
Published online: 30 August 2008
© Springer Science+Business Media, LLC. 2008
Abstract This paper analyzes competition between two sellers that offerhorizontally
differentiated items at competing auctions. Three possible outcomes can arise in equi-
librium. For substantially differentiated items the monopoly reserve prices form an
equilibrium, and the market is not entirely covered. When products become closer sub-
stitutes, a non-empty interval of types becomes valuable to both sellers. When transport
costs are low, and virtual valuations are high, sellers compete for these bidders and
set their reserve prices below the valuation of the marginal bidder. In equilibrium all
types enjoy participation rents. For intermediate levels of transport costs it is not worth
competing for runaway bidders. In this case, there is a continuum of equilibria. In each
equilibrium sellers adjust their reserve prices so that the marginal bidder gets no rents.
Keywords Competition · English auction · Horizontal product differentiation ·
The literature on auction theory has extensively examined the case of monopolistic
sellers, but only a relatively small number of papers examine competing auctions.
Thus the implication of competition between auctions and the analysis of the potential
connections between traditional market competition models and auction theory mod-
els in these markets is for the most part an open question. This paper is part of that
research agenda: It analyzes competition between two sellers that offer horizontally
differentiated items at competing auctions.
S. Parlane (
School of Economics, University College Dublin, Belﬁeld, Dublin 4, Ireland, UK