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

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. We begin by proposing a general theoretical model of bidding in simultaneous first price auctions, exploring properties of best responses and existence of equilibrium within this environment. We then specialize this model to an empirical framework in which bidders have stochastic private valuations for each object and stable incremental preferences over combinations; this immediately reduces to the standard separable model when incremental preferences over combinations are zero. We establish non-parametric identification of the resulting model under standard exclusion restrictions, thereby 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. ∗We are grateful to Philip Haile, Ken Hendricks, Paul Klemperer, and Balazs Szentes for their comments and insight. We also thank seminar participants at the University of Wisconsin (Madison), the University of Zurich, University of Leuven, Cardiff University, Oxford University, Cornell University, the University of East Anglia, and Universitie Paris 1 for helpful discussion. †London School of Economics, m.l.gentry@lse.ac.uk ‡London School of Economics, t.komarova@lse.ac.uk §London School of Economics and CEPR, p.schiraldi@lse.ac.uk