We experimentally investigate the sensitivity of bidders demanding multiple units of a homogeneous commodity to the demand reduction incentives inherent in uniform price auctions. There is substantial demand reduction in both sealed bid and ascending price clock auctions with feedback regarding rivals' drop-out prices. Although both auctions have the same normal form representation, bidding is much closer to equilibrium in the ascending price auctions. We explore the behavioral process underlying these differences along with dynamic Vickrey auctions designed to eliminate the inefficiencies resulting from demand reduction in the uniform price auctions.Key words: multi-unit demand auctions, uniform price auction, dynamic Vickrey auction, demand reduction, experiment.JEL classification: D44 (Auctions) * Research has been partially supported by grants from the Economics Division of the National Science Foundation. We thank Larry Ausubel and Peter Cramton for helpful discussions, Glen Archibald, James Peck, and seminar participants at Cornell University, University of Houston, University of Montreal, Ohio State University, University of Pittsburgh, Purdue University, and the University of Maryland conference on auctions, and three referees and the editor for helpful comments. Hui-Jung Chang, Juping Jin, and Scott Kinross provided valuable research assistance. We alone are responsible for any remaining errors. 2 1 Treasury bill auctions are often considered the canonical example of multi-unit demand auctions in which bidders have non-increasing demands. Policy debates regarding the optimal structure of Treasury bill auctions reveal a long history of confusion by a number of prominent economists regarding the incentive effects of uniform price auction rules (see Ausubel and Cramton, 1996).
3Spurred by the recent FCC spectrum auctions, theoretical research in multi-unit demand auctions reveals two distinctly different behavioral forces at work in auctions of this sort. In uniform price auctions, such as employed in Treasury bill auctions or in the recent FCC spectrum auctions, when bidders have non-increasing demand for homogeneous goods there is an incentive to reduce demand on some units in an effort to win other units at more favorable prices (see, for example, Ausubel andCramton, 1996 and Englebrecht-Wiggans andKahn, 1998). In contrast, when there are complementarities between items so that the value of a package of items exceeds the sum of its parts there are incentives for agents to bid above the value they place on any individual item (see, for example, Krishna and Rosenthal, 1996). Indeed, the recent FCC spectrum auctions have provided examples of both types of incentives: In the nationwide narrowband auction bidders appear to have had non-increasing demands, while in the broadband MTA auction there appear to have been complementarities between items (for analysis of the FCC auctions, see Cramton, 1995;McAfee and McMillan, 1996; Ausubel, Cramton, McAfee and McMillan, 1997).In this paper we experimentally...