ALMOST COMMON VALUE AUCTIONS: THE "WALLET GAME'' AND ITS APPLICATIONS TO TAKEOVER BATTLES AND AIRWAVES AUCTIONS

 

Paul Klemperer

Nuffield College, Oxford University

 

July 1997

 

Abstract

We use a classroom game, the "Wallet Game'', to show that in standard ascending, i.e. English, auctions of close-to-common-values objects, even slight asymmetries between bidders can have very large effects on prices. Examples of small asymmetries are a small value advantage for one bidder or a small ownership of the object by one bidder; the effects of these asymmetries are greatly exacerbated by entry costs or bidding costs. We discuss applications to Airwaves Auctions and Takeover Battles including the Glaxo-Wellcome Merger.