Auctions with almost common values: The 'Wallet Game' and its applications

We use a classroom game, the 'Wallet Game', to show that slight asymmetries between bidders can have very large effects on prices in standard ascending (i.e. English) auctions of common-value objects. 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 exarcabated by entry costs or bidding costs. We discuss applications to Airwaves Auctions and Takeover Battles including the Glaxo-Wellcome Merger. (C) 1998 Elsevier Science B.V. All rights reserved.