Simultaneous First-Price Auctions with Preferences over Combinations: Identification, Estimation and Application

Abstract

Motivated by the empirical prevalence of simultaneous bidding across a wide range of auction markets, we develop and estimate a structural model of strategic interaction in simultaneous first-price auctions when objects are heterogeneous and bidders have preferences over combinations. In this model, bidders have stochastic private valuations for each object and stable incremental preferences over combinations, nesting the standard separable model as the special case when incremental preferences over combinations are zero. We establish non-parametric identification under standard exclusion restrictions, providing a basis for both testing on and estimation of preferences over combinations. We then apply our model to data on Michigan Department of Transportation highway procurement auctions, we quantify the magnitude of cost synergies and assess possible efficiency losses arising from simultaneous bidding in this market.