Creating Competition Out of Thin Air: Market Thickening and Right-to-Choose Auctions

Abstract

We study a procedure for selling multiple heterogenous goods, which is commonly used in practice but rarely studied in the literature. The novel feature of this procedure is that instead of selling the goods themselves, the seller offers buyers the right to choose among the available goods. Thus, buyers who are after completely different goods are forced to compete for the same good, the 'right to choose'. Competition can be further enhanced by restricting the number of rights that are sold. This is shown both theoretically and experimentally. Our main experimental finding is that by auctioning 'rights-to-choose' rather than the goods themselves, the seller induces an aggressive bidding behavior that generates more revenue than the theoretical optimal mechanism.

Keywords: Right-to-choose auctions, experimental auctions, behavioral mechanism-design

JEL Classification: C91, D44